Commercial Mortgages
Commercial mortgage is a type of a mortgage loan that is secured by commercial property, such as an office building, shopping center, industrial warehouse or apartment complex. The proceeds from the commercial mortgage are usually used to acquire, refinance, or redevelop commercial property. The criteria for commercial mortgage are set so as to meet the criteria of the borrower and the lender. Due to the nature of the commercial mortgage, they are usually subject to extensive underwriting and due diligence prior to closing. However, a quick conversation with an Ottawa mortgage broker will leave you satisfied and assist you in making the right decisions.
There are two different sizes of commercial mortgages, small and large. Depending on the circumstance behind the commercial mortgage, for a small commercial mortgage, you may be provided by amounts ranging between $250 000 and $1 million, for a business property or a rental. For the large ones, you are provided by amounts ranging from $1 million to $40 million dollars, for commercial properties that are located in highly urban areas.
As the name suggests, there are a few notable differences between the residential and commercial mortgages. First of all, the underwriting process changes entirely. The biggest difference between the two is the cost of doing business. When considering the residential sandbox, the interest rate is very predictable. Also, there is no lender fee, the appraisal costs are low and the legal fees are standard. Evidently, all of these face a change when buying a multi-family or commercial property. It is possible for the rates to be higher, and the bank charges a fee – including your mortgage broker. It is possible that the legal accounting fees are be higher. Another difference is that the residential home inspector is not the same as the commercial property inspector and charge a considerably higher amount.
There a number of properties that can be classified as commercial properties, including pure residential and residential commercial mixed. In order to determine whether the property you are interested in investing is classified as a commercial property, you should get in contact with a mortgage. In addition to the differences outlined above, commercial mortgages take much longer to close, in comparison to residential mortgages, ranging from 60 days to a year.
In order to be able to get a commercial mortgage, there are a certain criteria that should be met. The bar is set quite high as the value of the loan is considerably higher. A commercial mortgage provides funding of over $1,000,000 for long-term financing of income producing properties, as mentioned above.
- Debt service coverage ratio: this is probably the main criterion that the lenders will examine and is basically the ratio of the cash that is available to the required loan payments.
- Credit history: it is necessary because lenders will examine your credit history and good personal credit score as well as evidence that your business is creditworthy. However, there are very few who provide with less than o’kay history.
- Current business situation: it is expected that your business is profitable and steady. It may be necessary for you to provide your business plan and financial projections.
- Type of business: the terms of the commercial mortgage are dependent on the type of the business as well as property you want to purchase. You should get in contact with a mortgage broker in order to determine the details.
- Down payment: a higher down payment is expected of a commercial mortgage.
Some common types of Commercial Mortgages are outlined below, with the debt service coverage ratio outlined:
Small Commercial Mortgages
Small Commercial Mortgages are designed for small businesses or investors that would like to purchase or refinance commercial real estate. As one of Canada’s largest brokerages for commercial property, we can tailor a financing solution to meet your financing needs.
How can this help my business?
Bricks and Mortar Loans provide funding up to $1,000,000 for long-term financing of income producing properties
What else do I need to know?
- To qualify, the real estate must be a multi-purpose, industrial, office, commercial, retail, or a multi-residential (5+ units) property
- The property must be located in an active resale and rental market where current market rents exist for comparable properties, and where the property is readily marketable
- Properties must be less than 20 years old or restored through renovation
- Small commercial mortgages require a current appraisal (AACI-qualified, bank approved appraiser; CMHC guidelines apply for CMHC insured mortgages), a passing environmental report (phase 1 ESA) and may need a report on the building condition
- Loans are available at a fixed rate for a term of 1 to 5 years
- Variable rate loans are available for 1-2 years and can be converted to fixed rate loan
- Multi-residential buildings, depending on the age and type of property, are amortized over a maximum of 25 years. Other types of property are amortized up to 20 years
Large Commercial Mortgages
A commercial mortgage is designed for businesses and investors who wish to purchase or refinance income producing, commercial properties. With competitive interest rates and a national network of real estate specialists, we are committed to finding solutions meeting the individual needs of each customer.
How can this help my business?
- A commercial mortgage provides funding over $1,000,000 for long-term financing of income producing properties
What else do I need to know?
- To qualify, the real estate must be a multi-purpose, industrial, office, commercial, retail, or a multi-residential (5+ units) property
- The property must be located in an active resale and rental market where current market rents exist for comparable properties, and where the property is readily marketable
- Mortgages require a current appraisal (AACI-qualified, bank approved appraiser; CMHC guidelines apply for CMHC insured mortgages), a passing environmental report (phase 1 ESA) and may need a report on the building condition
- Variable and fixed rate options are available. Variable rate option (prime-based) can be converted to fixed rate option
- Mortgages are available for a maximum of 5 years (10 years for CMHC-insured properties)
- Multi-residential buildings may be amortized over 25 years (CMHC-insured may be up to 35 years). Other types of property may be amortized over 20 years
Getting in contact with mortgage broker can help you get the answers to all your questions in the best possible way. Regardless of the fact that there are very few differences between the commercial and residential mortgage, there are differences nonetheless, and your mortgage broker can make the process easy to understand and follow.
