What Are Commercial Loan Rates Today
Updated: Monday, Oct 7, 2024
Commercial Loan Rates From Banks:
You almost certainly need a permanent loan. A permanent loan is a just a fancy term for a garden-variety first mortgage on a commercial property. A permanent loan has a term of five years or longer, and it must have some amortization. In other words, a little bit of principal is paid down with every loan payment. Most commercial-investment permanent loans, as opposed to multifamily loans, have monthly payments that are amortized over 25 years.
3.16% to 3.91% Fixed
Computed based on five-year Treasuries plus 2.75% to 3.5%. Each of the following strengths will argue for a lower interest:
- The larger the commercial loan amount, typically the lower the interest rate. You will usually enjoy a lower interest rate on a $7 million commercial loan, compared to a $700,000 commercial loan.
- The lower the loan-to-value ratio, the lower the rate you will be able to negotiate with the bank.
- The larger the net worth of the borrower, the lower the interest rate that can be negotiated. Banks will usually insist that the net worth of the borrower be at least as large as the loan amount.
- The more liquid the borrower; i.e., the more cash and marketable securities held by the borrower, the lower the interest rate that can be negotiated. Banks prefer to lend money to borrowers who really don’t need the loan. Try to never go to the bank when your cash reserves are low. Plan ahead!
Commercial banks and credit unions make well over 85% of all permanent loans on commercial property of less than $10 million. If you have good credit, you will almost certainly end up borrowing from a bank.
Commercial banks all offer pretty much the same commercial loan program:
The interest rate is fixed for the first five years. At the beginning of year six, the interest rate is renegotiated one time to market, usually between 2.75% and 3.5% over five-year Treasuries. The interest rate is then fixed for the remaining five years. Therefore the term of the typical commercial permanent loan is ten years. The monthly payments are usually amortized over 25 years (not 30 years). The bank will typically charge you a one-point loan fee. Usually there will be a modest prepayment penalty; maybe 3% in year one, 2% in year two, and one percent thereafter, with a six month window surrounding the rate readjustment (to make sure the bank doesn’t try to raise the interest rate to 20%). A window is period when the loan can be paid off without penalty.
Commercial Loan Rates on Apartments:
- The longer the term you are seeking, the higher the interest rate that you will pay.
- The larger the commercial loan amount, typically the lower the interest rate. You will usually enjoy a lower interest rate on a $7 million multifamily loan, compared to a $1 million loan.
- The lower the loan-to-value ratio, the lower the rate you will be able to negotiate.
- The higher the debt-service-coverage ratio, the lower the interest rate.
- The net worth of the borrower and the amount of his liquidity are not as important for an agency lender, compared to a bank.
- The larger the commercial loan amount, typically the lower the interest rate. You will usually enjoy a lower interest rate on a $7 million construction loan, compared to a $700,000 construction loan.
- The lower the loan-to-cost ratio, the lower the rate you will be able to negotiate with the bank.
- The larger the net worth of the borrower, the lower the interest rate that can be negotiated. Banks will usually insist that the net worth of the borrower be at least as large as the loan amount.
- The more liquid the borrower; i.e., the more cash and marketable securities held by the borrower, the lower the interest rate that can be negotiated. Banks prefer to lend money to borrowers who really don’t need the loan. Try to never go to the bank when your cash reserves are low. Plan ahead!
- The larger the commercial loan amount, typically the lower the interest rate. You will usually enjoy a lower interest rate on a $50 million CMBS loan, compared to a $5 million CMBS loan.
- The higher the Debt Yield Ratio, the lower the rate you will be able to negotiate with the conduit.
- The lower the loan-to-value ratio, the lower the interest rate that can be negotiated.
- The net worth of the borrower and his liquidity are not quite as important for a conduit as a bank; although a net-worth-to-loan-size ratio of at least 1.0 may be required on smaller loans (less than $10 million).