Commercial Loan Rate Outlook Report
November 5, 2024
Are Mortgage Rates Going to Come Down in 2024 and 2025
Are mortgage rates going to come down soon? Fannie Mae is projecting long term mortgages to average 6.6% for the remainder of 2024 and to only decline to 5.9% in 2025. The Mortgage Bankers Association is projecting 6.2% by year end 2024, and 5.9% by year end 2025. The National Association of Realtors predicts mortgage rates will end 2024 at 6.01% and decline further in 2025 to 5.8%. And Realtor.com predicts mortgage rates to end 2024 at 6.2%.
As you can see, the research these experts have done forecasts there will only be a slight decrease in rates through 2025. So, if you are hoping to get rates back to the low 4 percent range or even the low 5 percent range by the close of 2025, it doesn’t look likely. Feel free to call us as we shop our platform of over 50 funds to find the lowest rate for you.
What Affects Long Term Mortgage Rates
I have been a commercial mortgage banker since 1997. I know that long term mortgage rates follow the 10-year treasury yield. How do I know this? Because I look at the 10-year yield daily to know if our rates are going up or down. So, what affects the 10-year treasury yield? Both Bank Rate, and Investopedia agree that when the economy performs well and there is confidence that it will remain that way for a while, more investors move away from the safety of treasury bonds to invest in riskier investments like the stock market. This creates lower demand for 10-year treasury bonds and the Feds raise the yield on them to attract more investors. Thus, long term mortgage rates for both residential and commercial loans go up.
So, what happens when the opposite occurs when the economy tanks? When the jobs report, unemployment, inflation and GDP perform poorly the stock market usually declines and more investors flee back to the safety of treasury bonds. Now there is high demand for these bonds and the Feds lower the yield to make them more attractive; the effect of which is to lower long term mortgage rates. So, keep an eye on how the economy is doing along with the stock market to project the direction of long-term mortgage rates.
Why Longe Term Commercial Mortgage Rates went Up after the Fed’s Lowered Rates.
On September 18, 2024, the Federal Reserve Board had their highly anticipated meeting. With inflation down to 2.2%, everyone expected them to lower interest rates for the first time in over two years, which they did by a whooping half point. Most people expected long-term mortgage rates to go down after Fed Chairman Jerome Powell’s announcement. But the opposite happened. They went up.
Do long term mortgage rates mirror the increase or decrease made to rates by the Reserve? Most people think this. But this is a misunderstanding. Federal Rates that do change very quickly are the Federal Funds Rate (the interest rate for banks that borrower from the Federal Reserve Bank or other banks), Prime Rate and other short-term rates like the SOFR rate are also affected. Keep in mind though, there is not a mandate by the Federal Reserve Bank, that these rates go up or down when they change the Federal Funds Rate. These short-term rates affect credit cards, business loans, home equity lines of credit and all short-term loans.
According to the Federal Reserve Bank of St Louis, there is no direct correlation between the Fed’s changing short-term rates and long-term mortgage rates. https://www.stlouisfed.org/on-the-economy/2017/october/increases-fed-fun... Long term mortgage rates follow almost exactly the 10-year treasury yield. However, there does seem to be a slight trickle up effect from short-term rates to long-term rates after a few weeks.
What Commercial Loan Programs will have The Best Rates
According to Freddie Mac, on September 19, 2024, the day after the Fed’s lowered rates, the average rate on a Freddie Mac 30-year fixed home loan was at 6.09 as the 10-year treasury was just about at its lowest in over a year. By October 3, this rose to only 6.12%, and by October 7, 6.22%, as the 10-year treasury hit 4.00%, the highest in 2 months. Rates should have been a lot higher, but in my opinion, Freddie kept these rates artificially low to meet consumer expectations and stimulate the economy. From September 16, to October 7, our securitized commercial mortgage rates from Fannie Mae, Freddie Mac, FHA, Life Companies and CMBS increased by an average of 26 - 35 bps which correlates with the increase in the 10-year treasury yield during this period. So, these commercial loan programs must await the lowering of treasury yields for their rates to come down.
To compound this rate increase, Freddie Mac Multifamily raised interest rates 20 bps on October 7th which makes their loans un-competitive. Their purpose was to slow down demand as they are running out of their allotment of funds for 2024 which makes this one of the worst places to get a multifamily loan. Fannie Mae, Commercial Mortgage Backed Security (CMBS) loans, REITs and Life Companies raised their rates an average of .32 bps from September 19 through October 7th but will lower their rates when the 10 year treasury yield comes down.
One unexpected silver lining is that most community banks and credit unions did lower their rates on commercial loans by .25% for stronger customers right after the Fed’s lowered short-term rates. What they actually did, was use the Feds lowering of short term rates as a reason to stimulate more loan production. Keep in mind that large national banks and credit unions have a surplus of their own money to lend and can essentially lend at whatever rate they want as they rarely have to borrow funds. But they are run by smart executives who are going to sell their money at what they feel the market will bear. So, don’t expect a large giveaway here.
Will Long Term Mortgage Rates Come Down After The Feds Meet Again in 2024?
It is expected that the Fed’s will lower rates again during their November 6,7 and December 17,18 meetings by at least a quarter point. But do not expect this to affect long-term mortgage rates. If it does, it is likely a consequence, which does happen now and then. But as mentioned, the condition of the economy, which affects the stock market, which affects treasury bond yields will have the most influence on long term mortgage rates. Stay tuned.
Commercial Loan Rates & Guidelines for 15 Top Loan Programs
Commercial Mortgage-Backed Security (CMBS) Loans
Get a low 10-year fixed at a lower rate than what most banks have for their five-year fixed loan programs
These non-recourse loans have competitive 5- and 10-year fixed rates and can do
a blanket loan to include multiple properties. Lenders close with their own funds and
then sell the loans in securitized pools as mortgage-backed security bonds.
Acceptable Property Types: Multifamily, mixed use, senior housing, student housing, mobile home parks, self-storage, industrial, hotels, office, and retail.
Types of Loans: Permanent loans only
Program Guidelines and Requirements
▪ Loan size: $2,000,000–50,000,000
▪ LTV: 75% with cash out
For More on CMBS Loans go here
Community Banks
If you don’t have a high net worth or experience but have solid income, this is where you will qualify.
These are small banks that make loans in their own backyard. They have low requirements for net worth and liquidity, but require good income and credit. Most are not fond of cash-out refinancing.
Acceptable Property Types: Multifamily, mixed use, senior housing, student housing, mobile home parks, self-storage, industrial, hotels, office, retail, business owner-occupied, and land
Types of Loans: Permanent, construction, rehabilitation, mini-perm, and credit lines.
Program Guidelines and Requirements
▪ Loan size: $150,000––$6,000,000
▪ LTV: 75%; 65% with cash out
Credit Unions
If you have strong personal income and don’t want a prepayment penalty, this is the place to shop
Credit unions make loans to members who live nearby. They are nonprofit and can be very competitive on rates and loan fees. They are known for not having prepayment penalties.
Acceptable Property Types: Multifamily, mixed use, senior housing, student housing, mobile home parks, self-storage, industrial, hotels, office, retail, business owner-occupied, and land
Types of Loans: Permanent, rehabilitation, construction, and credit lines
Program Guidelines and Requirements
▪ Loan size: $75,000–15,000,000
▪ LTV: 75%; 65% with cash out
Crowdfunding Loans
If you only have 15% to put down, this can work here. But be careful. These lenders will want a preferred return and most of the ownership.
These loans can fund quickly in three or four weeks and are easier to qualify for than bank loans. Crowdfunding platforms are lenders that allow investors to invest in larger properties by pooling their money with other investors. Investors choose the properties they want to invest in, so be wary; sometimes they change their mind prior to closing and the crowdfunder has to find a replacement.
Acceptable Property Types: Multifamily, mixed use, senior housing, student housing, self-storage, and industrial
Types of Loans: Short-term, bridge/rehabilitation, and construction
Program Guidelines and Requirements
▪ Loan size: $250,000–12,000,000
▪ LTV: 75–80%
Fannie Mae Multifamily Loans
These low-rate nonrecourse loans can be fixed for up to 30 years
Fannie Mae, short for Federal National Mortgage Association, is a government-sponsored enterprise (GSE) and has some of the lowest rates and best terms around for apartment properties of five units or more. Rates can be fixed from 5 to 30 years. Fannie Mae does not actually originate loans, but is a publicly-traded corporation that guarantees and securitizes them to be sold as mortgage-backed security bonds. Authorized lenders close with their own funds and then sell the loans to Fannie Mae.
Acceptable Property Types: Multifamily, senior housing, student housing, and mobile home parks
Types of Loans: Permanent loans only
Program Guidelines and Requirements
▪ Loan size: $1,000,000—unlimited
▪ LTV: 80%, 75% with cash out
For more on Fannie Mae Loans go here
Freddie Mac Multifamily Loans
5 – 10 Year Non-recourse, low rates, and full-term interest only
Freddie Mac is a GSE that securitizes loans from their approved lenders. These are put into mortgage pools and sold to investors as mortgage-backed security bonds on Wall Street.
Acceptable Property Types: Multifamily, senior housing, and student housing
Types of Loans: Permanent loans only
Program Guidelines and Requirements
▪ Loan size: $1,000,000–50,000,000
▪ LTV: 75% with cash out
For more on Freddie Mac Loans go here:
Hard Money Bridge and Construction Loans
These are expensive temporary loans, but do not require great credit and net worth; they are fast and for many projects they pencil.
Poor credit and low net worth are usually acceptable. These lenders can close very quickly. It’s much better to use a hard money lender that gets their funding from a warehouse line of credit than from small private investors who can change their minds prior to closing.
Acceptable Property Types: Multifamily, mixed-use, senior housing, student housing, mobile home parks, self-storage, industrial, hotels, office, retail, business owner-occupied, and land
Types of Loans: Construction, rehabilitation/bridge
Program Guidelines and Requirements
▪ Loan size: $750,000–25,000,000
▪ LTV: 65–75%
HUD/FHA Multifamily and Healthcare
Being able to fix a low rate for 35 years makes this government loan program very attractive
The US Department of Housing and Urban Development (HUD) guarantees loans made from its approved lenders that are sold as the highest-rated mortgage-backed security bonds on Wall Street.
Acceptable Property Types: Multifamily, mixed use, senior housing, senior healthcare, and hospitals
Types of Loans: Permanent loans for refinance, acquisition, and rehabilitation; also construction rollover to permanent loans.
Permanent Loan Guidelines and Requirements
▪ Loan size: $2,000,000–100,000,000 plus
▪ LTV: 85%; 80% with cash out
For more on HUD/FHA Financing go here
Large Commercial Banks
If you are a high-net-worth experienced borrower, have large deposits with the bank, and are competing, they will break the bank to give you the lowest rate
These are banks such as Chase, Bank of America, Bank of the Ozarks, and Wells Fargo. They can lend very large amounts in larger cities nationally. They have higher net worth, liquidity, and experience requirements than regional banks. Because they have so much of their own money to lend they can be very competitive on rates and fees.
Acceptable Property Types: Multifamily, mixed use, senior housing, student housing, mobile home parks, self-storage, industrial, hotels, office, retail, business owner-occupied, and land
Types of Loans: Permanent, construction, rehabilitation, mini-perm, and credit lines
Program Guidelines and Requirements
▪ Loan size: $250,000–75,000,000
▪ LTV: 75%; 70% with cash out
Life Companies
They prefer low LTVs, strong borrowers, and large cities. But have the very lowest long-term fixed rates.
These large insurance companies have capital divisions that lend on commercial real estate. They prefer lending at 65% LTV or less, and have very low rates that can be locked for up to 25 years. They prefer large cities and financially strong experienced borrowers. Life companies lend their own money, with many doing CMBS executions.
Acceptable Property Types: Multifamily, senior housing, student housing, mixed-use, office, retail, industrial, and hotel
Types of Loans: Permanent, bridge, and construction loans
Program Guidelines and Requirements
▪ Loan size: $10,000,000–150,000,000 plus
▪ LTV: 70%
National Bank Capital Divisions
Loan size is not a problem here—and they have the lowest construction loan rates for strong experienced developers.
These subsidiaries of large banks such as JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup have the best loan programs for stronger, experienced borrowers. Along with lending their own money, many can do Fannie Mae, HUD, and CMBS lending.
Acceptable Property Types: Multifamily, mixed-use, senior housing, student housing, mobile home parks, self-storage, industrial, office, and retail
Types of Loans: Permanent, construction, and rehabilitation
Program Guidelines and Requirements
▪ Loan size: $10,000,000–250,000,000
▪ LTV: 70%
Bad Credit Secondary Market Commercial Lenders
Yes, rates are high, but if you have bad credit you can get the project funded here and work on building a higher credit score.
If your credit is less than perfect, these loan programs have much better rates and terms than hard money lenders. Commercial mortgage brokers specialize in these loans.
Acceptable Property Types: Multifamily, mixed use, senior housing, student housing, self-storage, and industrial, hotels, office, and retail
Types of Loans: Permanent and bridge loans
Program Guidelines and Requirements
▪ Loan size: $500,000–6,000,000
▪ LTV: 70% with cash out
For more on Bad/Poor Credit Multifamily Loans go here
Private Debt Funds
If you are getting turned down at banks and have a strong deal, this is the place to get your loan. They have simple make-sense underwriting.
These are private lenders that are regulated by the SEC. They pool money from investors and lend it at moderate to moderately high rates on commercial real estate. Loans are made more on the strength of the property than on the borrower. Commercial mortgage brokers specialize in these loans.
Acceptable Property Types: Multifamily, mixed-use, senior housing, student housing, self-storage, industrial, hotels, office, and retail
Types of Loans: Construction, bridge/rehabilitation
Program Guidelines and Requirements
▪ Loan size: $3,000,000–75,000,000
▪ LTV: 75% with cash out
For more on private debt fund bridge loans go here
Regional Bank Income Property Divisions
You can get a low 3–10-year fixed-rate and lock the rate immediately at application.
These lenders are capital divisions of banks and lend in the larger cities in the states they are located in; some lend in neighboring states as well. They generally have lower rates than community banks, can fix a rate for up to 10 years, and can lend larger amounts. Many sell their loans on the secondary market. They have higher net worth and cash requirements than community banks, but some of the lowest rates.
Acceptable Property Types: Multifamily, mixed-use, industrial, office, hospitality, and retail
Types of Loans: Permanent loans only
Program Guidelines and Requirements
▪ Loan size: $1,000,000–15,000,000
▪ LTV: 75% with cash out
SBA for Hospitality, Self-Storage, and Owner-User
Borrow up to 85% for self-storage and hotels.
Although the SBA (Small Business Administration) will go up to 90%, plan on 85% unless you can get a seller-carry second mortgage. These loans are easier to qualify for than most commercial loans.
Acceptable Property Types: Self-storage, hotels, and owner-occupied business properties
Types of Loans: Permanent and construction loans
Program Guidelines and Requirements
▪ Loan size: $125,000–12,000,000
▪ LTV: 85–90%
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