Are you considering purchasing or developing a commercial property? Find out everything you need to know about commercial mortgages here.
Types of Commercial Mortgages
The property types of a commercial mortgage are much different than those of residential. The most common property types will include multi-unit residential of 5 units or more, retail plazas, shopping centres, office buildings, industrial buildings, warehouses, factories, and medical centres.
Commercial loans can also be obtained for highly specialized types of real estate like a hotel, school, banquet hall or a property that is currently vacant. But you will need to find a customized lending solution for your financing needs. Commercial mortgage instruments can be obtained for a number of reasons beyond purchasing the building. Certain instruments are also designed to provide funds to help owners make improvements to existing buildings, finance long term capital projects, support growth, and develop commercial real estate.
Unlike a residential mortgage that will look at the loan to value and the borrowers, income, and debts, a commercial mortgage will also look at a number of other factors like the net operating income, capitalization rate, the environmental impacts, and tenant covenants before financing.
Rates and Down Payment
Rates are much higher on commercial mortgages than they are on residential ones. It’s also difficult to compare rates as lending conditions are not often advertised. The down payment is also much higher and will typically fall between 20% and 50% depending on the property type, business type and situation, credit history, and risk profile.
Residential mortgages usually take two weeks to one month to close. But since commercial transactions are much more complex, the closing can take anywhere from three months upwards of a year.
The commercial lending market is quite small. There are a limited number of lenders and options available. Lending requirements will also greatly differ, so it’s important to contact a mortgage broker who has connections with all the available lenders to find a suitable product for you.
Insurance options are also significantly different from commercial properties. For instance, CMHC doesn’t often insure commercial property unless there is a residential component. With commercial insurance, there’s a greater risk, especially if you have clients or suppliers visiting your business or you sell products. Even small business owners need the right insurance policy to ensure they are adequately covered which will come at a premium.
If you’re looking to purchase or develop a commercial property, contact our team at The Mortgage Advisors today. We’ll help you find a suitable mortgage and insurance product for your property type and needs.