When it comes to securing funding for your company, you might feel overwhelmed by all of your options. While expanding your company is exciting and rewarding, it’s important to evaluate your financial options to make sure you maintain a sustainable business model. One of the most common ways business owners fund these expansions is by securing commercial mortgages. Keep reading to find out why understanding commercial mortgage rates is important, learn how they’re calculated, and determine whether securing one is the right option for you.

What Is a Commercial Mortgage Rate?

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A professional typically takes out a commercial mortgage to help them acquire commercial property for their business. A commercial mortgage rate is how much they pay in interest as they pay their mortgage off through installments. While there are some similarities between residential mortgages and commercial mortgages, there are also a few key differences that are important to understand. Compared to residential mortgages, the loan-to-value ratio may be lower. However, the interest rate on a commercial mortgage may also be higher. 

It’s also important to determine whether the commercial mortgage rate you secure is variable or fixed. A variable rate may fluctuate throughout your repayment period, whereas a fixed rate stays the same throughout your mortgage. Learning more about commercial mortgage rates can help you assess whether securing one for your business is the right financial decision. 

What Factors Influence Commercial Mortgage Rates?

Several factors can influence commercial mortgage rates. While some of these factors, such as economic growth and inflation, aren’t things a business owner can control, there are many factors you can focus on to help you secure a low commercial mortgage rate, such as:

  • Credit score: One of the biggest factors that affects the interest rate you’re charged on your commercial mortgage is your credit score. Make sure you review your credit score before you apply for a commercial mortgage and look for opportunities to increase it if your score is low. Apps like Credit Karma can provide helpful credit monitoring reports and provide useful advice on how to improve your credit score. Look for any potential errors in your credit report to make sure you report them as well. The better your credit score is, the lower your interest rate may be. 
  • Loan amount: How much money you choose to borrow by taking out a commercial mortgage loan can also impact your interest rate. If you’re requesting a large amount of money, you may need to pay a higher interest rate to secure a mortgage loan successfully. 
  • Down payment: One way to lower your interest rate is by making a larger down payment. Try to set aside enough money to make at least a 20% down payment on your commercial mortgage. If you’re unable to do so, your lender may require you to purchase insurance for your commercial mortgage. 
  • Loan term: Finally, the duration of your loan term influences your interest rate. Short-term loans typically have lower interest rates, but require larger monthly payments. While this can save you money in the long run, it’s important to consider your current monthly budget and expenses. Conversely, a long-term loan may have a higher interest rate, but allow you to make smaller monthly payments over an extended period. 

How Are Commercial Mortgage Rates Calculated?

In addition to the factors we discussed above, there are a few fees most commercial mortgage lenders assess when calculating a commercial mortgage interest rate. Knowing about these potential fees ahead of time can help you negotiate your terms and understand how your lender determined what to set your interest rate at. Here are some fees you may see included:

  • Valuation fee: Commercial mortgage lenders often have one of their valuers inspect the property to determine its worth. Your lender may give you the option to pay for this valuation later on in this mortgage approval process to make sure you fully agree to the terms instead of paying an upfront cost for this service. Although this can prevent you from wasting money if you decide not to secure the commercial mortgage, it may result in a slightly higher interest rate. 
  • Lender arrangement fee: When a commercial mortgage lender arranges a loan, they typically charge a fee for this service. This lender arrangement fee is added onto the loan itself and usually ranges between 0.75% and 2.5%.
  • Broker fee: While some brokers are paid by the commercial mortgage lenders directly, others make their income by charging a fee on each mortgage they arrange. This fee typically hovers around 1% interest. 
  • Legal fee: Commercial mortgage lenders often work with legal representatives to help them navigate complex commercial mortgages. The person borrowing money by taking out the commercial mortgage typically pays for these legal fees.

What Are the Benefits of Securing a Commercial Mortgage Rate?

Securing a commercial mortgage can be a great way for business owners to excess important funding while maintaining low overhead costs. One of the main reasons professionals often choose to take out commercial mortgages is because this type of loan typically offers the lowest interest rate for business owners. Some of the other ways securing a commercial mortgage rate can benefit you include:

  • Extended loan terms: You can pay commercial mortgages back over longer periods, which allows you to make smaller monthly payments while you work to increase your business revenue.
  • Access to large sums of capital: If you need to raise a significant amount of funding to expand your business or purchase a commercial property, taking out a commercial mortgage can help you cover these costs with a single loan.
  • No need for collateral: Lenders usually apply commercial mortgage rates to commercial loans which are typically unsecured. This means you may not need to provide collateral to secure your commercial loan.
  • Ability to maintain business ownership: While you can secure funding through venture capital investments, this typically requires signing over a percentage of your business to new investors. However, if you secure a commercial mortgage, you maintain control and ownership of your company.

If you’re considering taking out a commercial mortgage rate or have questions about your options, our team at Titan Funding is here to help. We’ll walk you through every step of the process to secure a commercial mortgage that’s right for you. Contact us via our secure online messaging system and one of our knowledgeable team members will assist you.