How do you Get the Best Commercial Loan Rate and Terms?
Commercial lenders are often a lot like car dealerships. If you ask a car dealer for a better price, they might tell you the price they are quoting you is the best they can do and only $500 above their costs. If you ask a commercial lender for a better rate, they will often tell you they are giving you the best rate based on their cost of funds. We all know that car dealers can give you a better price when you walk away. The same is true for most commercial lenders who are also salespeople. Many loan terms are also negotiable. We are talking about loan fees, processing fees, underwriting fees, third party report fees, legal fees and prepayment penalties. Lenders will usually try and convince you these are set in stone. But often they are not. Commercial lenders love their loan and ancillary fees as they cover their operating expenses, cost of funds and profit. Some of the best commercial lenders to bargain with are large banks and credit unions who have more of their own money to lend than borrowers. They don’t have to worry about borrowing funds overnight at a variable rate to keep their balance sheets in good shape for the regulators. In exchange for deposit relationships these lenders can cut you a deal.
What is the Average Interest Rate on a Commercial Loan?
On commercial real estate loans for experienced borrowers who have good credit (700 or above credit score) the best rates average from 1.85% to 2.85% over the 10-year treasury yield index. Please see today’s rate chart for actual rates. Private Debt Fund lenders and hard money lenders often charge as high as the market will bear.
Do You Have to Put 20% Down on a Commercial Loan?
Down payment is determined by the Net Operating Income, Property Value, and Interest rate. At Apartment Loan Store, we can do an FHA Multifamily loan for you with an average of 20% down. This program goes up to 85% LTV. However, as a result of high interest rates and property values today our average borrower has to put down closer to 30%. For commercial loans in small MSAs, community banks are averaging down payments of 35% today.
What Are the Best Commercial Loan Rates?
HUD/FHA has the best commercial loan rate today for Multifamily Properties. What’s outstanding about HUD is they not only have one of the highest leverage loans, but they can lend in any size market in the country. This is followed by Fannie Mae, Life Companies and Large Commercial Banks which prefer lending in large markets. Rates for these lenders are determined based on property location, net operating income (NOI) , Loan to Value, and borrower strength. Feel free to call us and we will provide you with the lowest rate quote on your acquisition or refinance from oulending platform with over forty sources of funds.
How Are Commercial Loan Rates Determined?
Almost all commercial loan fixed rates are based on the 10-Year Treasury Yield Index plus a spread. The spread is added to the index. It needs to cover the lenders cost of funds, overhead expenses and profit. The 10-year treasury yield changes daily. For example if the 10-year is at 4.25% and the lenders spread is at 2.25%, the all in rate will be 6.5%. Adjustable rate commercial mortgages work the same way but are tied to the SOFR rate index plus a spread.
When Can You Lock a Commercial Loan Rate
Most banks prefer to lock the rate once the loan is approved or just prior to closing. This is especially the case for smaller banks that borrower money on variable rates overnight. Large Banks and Community Banks can charge you a 1.00% refundable at closing deposit to lock the rate at application. Some credit unions can quote you a rate and lock it at application. But many credit unions let the rate float until loan approval or closing based on the spread over an index. Most securitized lenders like Fannie Mae and CMBS lock the rate at loan approval. On loans under $7 million, Freddie Mac can lock the rate at application.
Are Fixed or Variable Rates Better?
I have been a commercial lender for 28 years and from my experience fixed rates are usually a safer bet. However there have been many times when variable rates have provided the lowest loan payments during a 3 – 5-year term. But the worst did happen in January 2022 when the SOFR rate went from .50% to 5.50% over the following 2 years. The borrowers for most of these adjustable rate mortgages purchased rate caps to protect themselves from potential rising rates. This is a kind of insurance. But this system has failed for many borrowers because the SOFR rate went beyond their maximum rate cap. This has forced many to have to refinance or sell their properties. In the worst cases borrowers had to default on their loans because they could not afford to pay for the lenders loss on the rate cap. At times when the SOFR rate is low, if you are attracted to the low monthly payments offered see if you can find a loan program that will allow you to convert to a fixed rate loan program at your discretion.
