Tag Archives: commercial real estate interest rates

Typical Commercial Real Estate Interest Rates

1page_img2-bigCommercial real estate interest rates among lenders can vary dramatically. Let’s take a look at the various lenders and the typical rates you may expect.

The first caveat is this: there really are no typical rates. This is because the commercial real estate interest rate you obtain will be dependent, to a large degree, on your creditworthiness, your debt-to-income ratio, the amount of money you have in the bank, your credit score, the length of time you’ve been in business and your collateral. All commercial loans usually carry higher interest rates than residential loans. This is often due to a limited credit history as well as an increased risk to the lender. Other considerations include the fact that the larger, longer-term loans generally have higher rates. There are also some fixed-rate loans out there without end-of-term balloon payments, but those are few and far between and even fewer qualify.

The following are typical commercial real estate interest rates based on the type of lender. As noted, these will vary depending on the many variables we previously listed. Because we are currently in a period of extremely low rates, these will fluctuate and tend to rise as the economy stabilizes or continues to mend, creating rising interest rates. Life insurance companies usually carry one of the lowest interest rates often starting in the mid-3 range. They prefer to make loans to established borrowers and ones with high credit scores and creditworthiness. You will also need a fair amount down. Traditional banks are currently in the 5 to 7 percent range. They too are difficult to qualify for and require good credit and a low debt-to-income ratio.

The Small Business Administration offers loans with rates that currently fall in between 4 and 9 percent. You will need to have been in business for at least two years, have a credit score above 680 and show some profit.

Hard Money Lender Rates

Hard money loans are typically funded by private individuals or small groups. Interest rates vary widely depending on the type of loan, the project and the particular investor. On average, they are usually in the 10 to 18 percent interest rates. They are often short-term loans with borrowers using their businesses or property’s collateral in order to obtain the loan. Their credit score and credit worthiness is less important to these types of lenders. On average, their terms range from 1 to 3 years.

As you can see, commercial real estate interest rates vary widely, starting in the 3.5 percent range and going all the way up to 20 percent and above. In order to get the best rate, know your project, come with a budget and permits in hand, know the value of your hard-asset, and save up until you can have some “skin in the game” which leaves vulnerable investors feeling a little better about their investment. Call us at Level 4 Funding for a no-obligation quote.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
clip_image002clip_image004clip_image006clip_image008
About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Commercial Real Estate Interest Rates

SunflowerMuch like residential mortgage rates, commercial real estate interest rates have a great deal of variety depending on a number of factors. Knowing how interest rates are calculated, and what can impact them, will help you to make informed decisions as a borrower.

Although each lender is different, there are some common factors that go into determining commercial real estate interest rates.

One of the biggest questions that a borrower must ask when consulting with a lender is whether an interest rate is fixed or variable. A fixed interest rate does not change from month to month. It remains the same for the entire life of the loan. This will remain the case, even if the interest rate falls below the interest rate that was agreed upon. Commercial real estate interest rates that are fixed are very difficult to acquire because the lender wants to optimize their potential profit as well. Because of the size of commercial loans, lenders will often only extend a fixed rate term to a long-standing client or a borrower that is extremely well qualified in the credit area.

A variable rate loan can rise or fall past the initial interest rate. These types of commercial real estate interest rates are by far the most common. They can also cause a great deal of anxiety amongst borrowers, as monthly payments rise and fall based on market factors, instead of anything in the control of the borrower. If a borrower does have a loan that has a variable interest rate, it is crucial to understand how the interest rate is determined and what the borrower can do to affect it. In most cases, there is nothing that the borrower can do, as the interest rate is based on the prime rate that is set by the federal government. The government sets this rate based on the strength and speed of the national economy as a whole.

A borrower does have the potential to get incredibly lucky and have the interest rate drop during the term of the commercial loan. Having such a windfall has the potential to save a borrower several thousand dollars. However, this should not only not be planned for, but it should be assumed that it is not going to be the case. It is far more likely that commercial real estate interest rates will rise, even if just slightly.

What determines commercial real estate interest rates?

First and foremost, interest rates are based on the prime rate. With this as a base, lenders are free to add “points” to the interest rate. These points translate directly to interest rate percentage point increases. Depending on the creditworthiness of the borrower, or the amount of collateral and security that they are willing to put down, the number of points can vary. It is important to remember, however, that lenders want borrowers to choose them. Because of this, it is not very likely that the interest rates will be that extraordinary or unrealistic. Commercial real estate interest rates are very dependent on the qualifications of the borrower.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
clip_image002clip_image004clip_image006clip_image008
About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage