A commercial mortgage is a loan that is used specifically to purchase commercial property. This can include anything from office buildings to hotels and typically requires a more extensive and complex appraisal process than residential mortgages. The interest rates on these mortgages are generally higher, and the loan terms are often longer. The lender will take into account the expected income from the property as well as the borrower’s financial history when making their decision.
If you’re planning to invest in commercial properties, you definitely want to be more in tune with the rates these days and other relevant information. You’re in the right place as we share this commercial mortgage guide for 2023:
CMHC-Insured Rates for Commercial Mortgage
The Canada Mortgage and Housing Corporation (CMHC) offers insurance to mortgage lenders in case their commercial borrowers fail to make mortgage payments. If this happens, the CMHC will step in and reimburse the lender for the amount of the loan that was not paid. By providing this insurance, lenders are given an extra layer of protection and security against potential losses.
CMHC-backed commercial mortgage customers are given access to competitive rates as the lenders are assuming less risk. Instead of using the BBB corporate yield rate like with a traditional commercial mortgage, the CMHC mortgage rate is determined by the Canadian Mortgage Bond Yield.
The CMB yield is, on average, a little more than 1% greater than the 5-Year GOC Bond Yield. This is taken into account when a mortgage lender adds their own premium to the CMB yield based on the borrower’s risk factor. This premium can range from 0.4% to 2%. This brings the total to an expected CMHC mortgage rate that is usually between 1.4% and 3.5% higher than the 5-year GOC bond yield.
Commercial Mortgage Terms
Commercial mortgages can be complex and vary depending on the kind of property, its use, and the buyer. Nonetheless, most mortgages for developed properties such as multi-family dwellings, retail stores, offices, and hospitality locations tend to have similar terms. The specifics of a commercial loan may differ depending on the individual situation, but in general, most provide similar stipulations:
- Amortization of up to 25 years
- Loan-to-Value of up to 85 percent
- Rate Types are either fixed, variable, or combined
- Term length is anywhere between one and 25 years
The loan’s term, or length, can vary between 1 and 25 years, with most commercial mortgages having terms of 5 to 20 years. If a borrower needs a loan for a shorter period of time, such as less than five years, they may opt for bridge financing.
Generally, commercial mortgage borrowers will choose a long-term loan when interest rates are low, but if interest rates are anticipated to decrease, they may opt for a shorter-term loan.
Commercial mortgage loans have a lower loan-to-value (LTV) ratio than residential mortgages. This means that the amount of the loan is limited to a certain percentage of the value of the property. For example, the LTV of a commercial mortgage loan may be up to 85% for certain types of property, such as farmland or vacant lots, but it could be as low as 50% for other types of property. On the other hand, residential mortgages may have an LTV of up to 95%. The lower LTV for commercial mortgages is due to three factors: the risk associated with the loan, the size of the loan, and the income generated from the property.
Why You Need the Help of a Mortgage Agent to Help with Your Commercial Property Mortgage Loan
A commercial mortgage agent in Canada is someone who can help you find the perfect mortgage for your needs and help guide you through the complicated process of obtaining it. They can help with all of the paperwork, such as long environmental reports and building condition reports, to make sure everything is in order when you apply for a mortgage.
Commercial mortgage rates in Ottawa are determined by a variety of factors, such as the type of property, location, loan amount, loan-to-value ratio, credit score, and business type. Despite the fact that the market is currently shifting and interest rates are generally on the rise, Ottawa still offers competitive commercial mortgage rates. It is important to shop around and compare different lenders in order to find the best rate and terms for your business. With proper research and the help of a trusted mortgage agent in Ottawa, you should be able to find a commercial mortgage rate in Ottawa that suits your needs.
Ottawa Mortgage Services provides financial advice and assistance to people looking to buy a home or commercial property, refinance their current mortgage, or consolidate their debt. We specialize in helping first-time home buyers, self-employed individuals, and others. Schedule a meeting with our Ottawa mortgage agent today!