What is a commercial mortgage?
A Commercial Mortgage is a loan taken out on Commercial Real Estate by using the property as collateral. The borrower is usually a business or a company. Since checking the creditworthiness of a business is complicated, a Commercial Mortgage is one of the most complex types of Mortgages. Due to the higher risks involved, the rate of interest on a Commercial Mortgage in Ontario is higher than the rate of interest on a Residential Mortgage.
The main differences include a unique set of lenders, longer turnaround times, and higher interest rates than Residential Mortgages. A typical minimum down payment on a Commercial purchase is generally anywhere between 35 – 50%. However, it is case by case as each borrower has their own given unique situation.
Depending on the property’s condition, resale ability, and other factors, lenders generally offer to Finance 65% to 85% of the appraised market value of Commercial Real Estate properties. Generally speaking, Commercial Mortgage rates in Ontario can range anywhere between 4 to 8%. However, the exact rate depends on the type of property being financed and the borrower’s Loan To Value percentage. The lower the Loan To Value = The lower the interest rate will be.
Types of properties eligible for Commercial mortgage in Ontario
A Commercial Mortgage is available for the following types of properties
- Multi-Unit Residential (5 or more Rental Units)
- Retail Plazas, Strip Malls and Shopping Centres
- Office buildings and Medical Centres
- Industrial buildings
A Commercial Mortgage is not available for highly specialized Real Estate including:
- Hotels and Motels
- Social clubs and banquet halls
- Schools and places of worship
- Recreational Real Estate
- Car washes and Restaurants
- Properties that are currently vacant or being retrofitted
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What can a commercial mortgage be used for?
A Commercial Mortgage can be used for the following purposes:
- For constructing a new office or location for the business
- For Renovations needed on the existing Commercial property
- For investments within the business
- For property development
If the borrower chooses to pursue a Commercial Mortgage, certain specific criteria’s will have to be fulfilled. These include:
- An adequate debt service coverage ratio.
- A good personal credit score as well as evidence of business creditworthy.
- Current business situation indicating that the business is up & running and profitable & steady.
- Future business plan and financial projections
- Type of business
- Type of property the borrower wants to purchase
- A down payment of anywhere between 35% to 50%
- A Commercial Real Estate appraisal report
- A site inspection by the lender
- Current rent rolls and list of tenants
- Leasing Agreements
- Income and expense statement
- Notice of Assessments (NOA) or T1 Generals for the past 2 years
- Business licence or articles of incorporation
A Commercial Mortgage can be financed through the following types of loans:
- Private Mortgage
- Second Mortgage
- Mortgage Renewal
Outside the Mortgage amount the following costs will also have to be borne by the borrower:
- Legal Fees include Attorney Fees, Research Fees, Title searches, and potential Court filings
- Property appraisal or property Valuation Fee
- Property condition Assessment Fee
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Shawn demonstrates excellent customer service skills. He’s always very quick to respond to my emails and calls. Shawn helped me get approved twice in the past year alone and I hope to work with him again in the near future. Shawn was very friendly, attentive and dedicated his time and effort by providing me with solid knowledge, expertise and advice which in return helped the process of purchasing my first home very easy and stress free. Shawn even followed up on my behalf with my lawyer in order to finalize all the details. I would highly recommend his services.
From the first time I spoke with Shawn Sef, I felt comfortable and at ease which was due to his calm and patient personality and attitude. He was also very understanding and caring to our current situation and needs by providing the best course of action for us to take which made the most sense for our family. Shawn is very knowledgeable within the mortgage field and delivered exactly what he said he would. He even provided us with accurate closing/funding dates from day one. I would definitely recommend Shawn Sef to any borrower looking for a good
Shawn had helped my wife and I obtain a 2nd Mortgage from a Private Lender last year. We used the majority of the Mortgage loan proceeds to help renovate/upgrade our home. Once the refurbishments had concluded, we ordered a new appraisal and noticed that our house value had increased substantially. The following year, Shawn helped us refinance both our Institutional and Private Mortgages into a new low rate, 1st Mortgage with an A Lender (Bank) which is going to help us save an extensive amount of money in monthly payments moving forward. I’m very thankful for Shawn’s knowledge, skills and expertise within the mortgage industry which ended up helping us save thousands of dollars.