Commercial Mortgage Rates Canada
If you are new to real estate investing, you might be wondering just what the difference is between a residential and a commercial mortgage. A residential mortgage is designed for a property that you plan to live in, either as a primary residence or as a vacation or second home. Residential mortgages are also available for properties that you plan to rent out. A commercial mortgage is tailored to investors and businesses that want to buy or refinance properties that are commercial and generate income. If you take out a commercial income, you can receive funding for more than $1,000,000 for financing of properties that will generate income for you over time. However, there are several criteria that a property must meet for you to take out a commercial mortgage on it.
Canadian Commercial Mortgage Rates
First, the mortgage can only have a term for up to five years, except when the property is insured by CMHC, in which case the maximum is ten years.
Next, you may only amortize multi-residential properties for 25 years, except for CMHC-insured properties, which allow amortization over as many as 35 years. For other types of property, the amortization period is 20 years.
You also have the choice between fixed and variable interest rates, just as with a residential mortgage. It is possible to convert a variable rate option loan, which is tied to the prime interest rate, to a fixed rate option. Given the fact that interest rates are so low, though, fixed rate loans are much more popular than the variable variety at the present time.
The property also must be situated within a market that is active in rentals and resale, and there must be a viable current market for properties that are comparable. It must also be easy to market the property without having to make major improvements.
Commercial mortgages will require a current appraisal. If you are looking for a CMHC-insured mortgage, CMHC guidelines are in force. If not, you must have an appraiser whom the bank approves and who is AACI qualified. The building also needs a passing phase 1 ESA environmental report. Also, you may need to have a report done on the condition of the building.
Finally, you can’t get a commercial mortgage unless the property is multipurpose, office, retail, commercial, industrial or multi-residential with more than five units.
Currently, commercial mortgage rates in Canada are available between 4.5 percent and 6 percent, depending on the term of the loan and whether you are willing to take a variable or fixed rate on your mortgage.
The amount of a property’s value that you can mortgage depends on how much of the property you own. If you occupy 50 percent or more of the above ground area within a property, you can finance as much as 75 percent of the value of the property. If you occupy less than 50 percent, then you are capped at 60 percent of the property’s value for your loan.
Some lenders will extend you a commercial line of credit instead of tying you to a specific mortgage amount that you have to pay back. The specifics of each deal will vary somewhat, depending on the bank that you use.
Another option, particularly if you think that bank financing will be difficult for you to qualify for, is a private loan. In this sort of situation, you borrow money directly from an individual or company that has money to lend and is looking for a higher rate of return than government secured accounts, but does not want the risk of market investing. You will have to put down a higher down payment with a private lender, and your interest rate is going to be higher, but this is due to the fact that you represent a higher risk because you had a hard time qualifying for traditional financing.
If you are looking to invest in the commercial real estate market, now is the time, with these historically low interest rates. You will find that prices are also still in the low range historically, as the market is still gradually waking up from the collapse of 2008 and 2009. If you can find investors to join with you, you can put together a deal that will prove to be lucrative for your group over time.