Imagine that you have already dealt with normal mortgages, you know everything about them and even already paid one, but here comes the commercial mortgage rate and commercial mortgages in general. You need this type of loan if you are a businessman, for example, self — employed or you want to invest in real estate. But first things first, let’s see what a commercial mortgage is.
What a Commercial Mortgage Is
Real estate loans are taken not only for living but also for work. Such things are especially relevant for businessmen who do not want to constantly pay for someone else’s office. Such loans are informally called “commercial mortgages”.
We have identified several main features of a commercial mortgage, which is also called a “business mortgage”:
- The borrower can be a commercial legal entity or an individual entrepreneur
- The subject of a commercial mortgage can be real estate used for entrepreneurial activity, that is, non-residential (for example, for the placement of offices, retail, warehouse, industrial premises, for rent, and so on)
- The real estate will be pledged by the bank that issued the loan for its acquisition until the completion of all payments on the loan
- In case of non-fulfillment or improper fulfillment by the borrower of its obligations to the bank, the bank will have the right to receive the satisfaction of its monetary claims against the debtor from the value of the pledged real estate.
More detailed conditions for a business mortgage, as well as the bank’s requirements for the borrower and the acquired real estate, are not legally regulated and therefore are developed by each bank independently.
Therefore, in order to obtain more accurate information on a specific case, it is better for you to contact the bank itself or a mortgage broker.
Who Can Apply for Commercial Mortgages
Now we will look closer not only at the commercial mortgage rate but also at the qualification criteria. You can be sure that they are much more strict than ones for a normal mortgage because commercial mortgages are riskier. So, what will be regarded in the first place by the bank?
- Type of business. This area can be really tricky, so it is better for you to hire a solicitor, a specialist, or a chartered surveyor, to advise you. Because terms of the commercial mortgage are highly dependent on the type of business as well as the property you want to purchase. It depends on whether you want to buy a candy shop or a whole factory, isn’t it?
- Down payment. Another huge difference between a normal mortgage and with commercial mortgage rate one is the amount of the down payment. It is logical that for a commercial mortgage it is bigger and starts from 20% (when with a normal mortgage in most cases it is maximum) and goes up to 35% in case of mixed property. If we are talking about a commercial-only down payment – it is approximately 50%.
- Credit history. As well as with a normal mortgage, your credit history will be thoroughly checked. Moreover, a bank will look not only at your personal credit history, but you also need to prove that your business is creditworthy.
- Current business situation. It is good that your business got its feet on the ground, but it is still not enough. You also need to show that it will be profitable in the future, so you will be able to pay your debts. Your net worth should be from 100 to 200K and funds need to be liquid, not in equity cash, stocks, etc.
- Debt service coverage ratio. Finally, the most important criteria for you. Basically, it is how much money do you have to pay for your future loan, so there is no doubt that it is important.
Additional Commercial Mortgages Fees
We already understand that a commercial mortgage is way more expensive than a normal one but that is not all. There are some other special requirements. For example, your mortgage broker will charge you a finder’s fee. This fee can be in the range of several thousands of dollars, however, it can help you save even more.
Moreover, insurance for businesses works a little bit differently. CMHC won’t insure a purely commercial property. However, you still need to find good insurance for your business to receive a commercial mortgage and to be saved from bankruptcy.
Commercial Mortgage Rate vs Mortgage Rate
Here we will show you a table of comparison between commercial and normal mortgages
|Point of comparison
|From 90 days to a year
|From 5 years to 30 years
|Requested down payment
|From 20 to 50%
|From 0 to 30%
|Requested, will charge you
|Requested, can be free for you
We hope that this article will help you take all necessary precautions when you want to obtain a commercial mortgage rate. As we have already mentioned, it is way riskier. But banks usually give loans to businessmen whose situation looks much more stable, the chances are much greater for you to obtain one. So if you are really serious about finding a business mortgage for your business or you just want to invest somewhere in Canada, then call your mortgage broker right now.