When it comes to getting housing units in Canada, the most sought-after option is a house mortgage from the bank or mortgage broker. You can get a mortgage to finance your residential home and commercial property.
A commercial mortgage is similar to what you have for a residential mortgage; the only difference is that this mortgage is taken for non-residential buildings commonly referred to as commercial property. Commercial property covers many facilities that cannot be financed under the residential mortgage plan.
Commercial mortgage rates are determined by the type of properties and their use. There is no fixed rate for a commercial mortgage as it differs for different properties and the mortgage company involved. In this article, Best Mortgage Online will provide you with the right information about the best commercial mortgage rates you can find in Canada.
Commercial Mortgage vs. Residential Mortgage
As introduced above, the type of property involved sets the major difference between a residential and commercial mortgage. While the residential property is usually sought after by regular home buyers or small real estate investors, commercial property is normally meant for real estate investment corporations, partnerships or limited companies.
The commercial property is usually used for business purposes against homes solely used for residential purposes. As you might have imagined, the rates set for a commercial mortgage are typically higher than a residential mortgage, as well as the repayment conditions. However, the repayment period is usually longer than those allowed for a residential mortgage.
In the case of residential mortgage, qualification is usually based on credit scores, personal income etc. But, for a commercial mortgage, the property you are taking out a mortgage for usually serves as collateral till the loan is paid back. It also requires you to have a higher down payment than residential properties. The down payment for commercial property can be as high as 25 – 35% of the cost.
What Counts as Commercial Property?
To be clear about how rates for commercial mortgages are calculated, it is necessary to differentiate between what type of property qualifies for a commercial mortgage and how it is different from a residential one.
The common commercial properties that can be financed in Canada include the following:
- Multi-Family residential property (5 units and above)
- Mixed-use properties
- Office buildings
- Industrial buildings
- Retail plazas
- Medical buildings
- Shopping malls
- Construction projects
These commercial properties under this form of mortgage come with specific Loan-to-Value up to 85% depending on the property type. Properties such as farmlands or vacant spaces can have an LTV as low as 50%. Still, the more functional the property is, the higher the LTV provided by the mortgage company.
Commercial Mortgage Rates in Canada
A commercial mortgage company in Canada can help you get the best mortgage for properties at the lowest rate possible. Asides from this, the process of getting a commercial mortgage might be a bit more complicated with a lot of paperwork. Still, you can easily do this with the assistance of a commercial mortgage company.
When it comes to commercial mortgage rates, there is no one-size-fits-all solution. Instead, the rates depend on the type of property to be financed and the borrower’s financial status. For instance, stable properties connected with borrowers with good credit scores carry better rates than riskier properties with borrowers with not a great credit score.
Commercial mortgages are often based on BBB corporate bonds. Mortgage lenders apply a risk premium to the business loan based on its risk. As a result, riskier borrowers must pay a greater premium, whereas low-risk borrowers’ rates will be closer to a BBB corporate bond yield. On the other hand, these rates are often higher than CMHC-insured commercial rates, which pose the least risk to lenders.
On average, in Canada, the conventional rate for commercial mortgage rate for five years is between 4.3% – 8.3%, while a five-year rate for Canada Mortgage and Housing Corporation (CMHC) is between 3.2% – 5.3%. Additionally, CMHC insures business mortgages against failure. This safeguards mortgage lenders by ensuring that they are compensated if a business borrower fails on the mortgage.
How to Apply for Commercial Mortgage?
Although different mortgage companies have different regulations when applying for a commercial mortgage, there are still basic similarities. For example, the following steps are often required to apply for a commercial mortgage.
- Put your business finance in order: One sure thing a potential lender will be looking out for is the viability of your business in terms of profitability and income history. This gives the lender a sense of credibility and the ability to repay the mortgage. Therefore, before applying, you should ensure that your finance is in order.
- Determine the type of mortgage you want: Even for commercial mortgages, different service plans are still dependent on the property type. Therefore, before applying for a mortgage, it is best to look at the different plans available and pick the most suitable one for your intended purpose.
Some of the points of consideration include the repayment plan, interest rate, location of the property, production or repair time, and recurring costs like operational fees, legal fees etc.
- Put together your business documents: Time is of the essence during application for a commercial mortgage as there are most likely other interested parties bidding for the same property. Therefore, it is advantageous to have all the required documents beforehand to beat the competition.
Typical examples of documents required during this stage include; a well-articulated business plan, updated financial statements, details about the commercial property and other useful documents or information about your business.
- Make an offer: Commercial mortgage is quite a serious investment. It is usually capital intensive and carries a higher risk than a residential mortgage. Therefore, it is best to make an offer with your mortgage company to get the best possible mortgage conditions suitable for your company.
The commercial mortgage requires more capital than a residential mortgage; it is only granted for specific types of properties. It also requires different or additional requirements with varying rates and conditions. The rates on commercial mortgages are generally higher; mortgage companies insured by CMHC have a rate between 3.2% – 5.3% for five years.
For ease of getting a commercial mortgage, it is recommended that you have all your documents – financial statements, business proposals etc. – handy before applying. You should also apply early enough to ensure ample time for proper application review.
At Best Mortgage Online, we can assist you in getting the right information to prepare you for a commercial mortgage. Contact us with the button below.