Finance Roll

The subject of commercial mortgage interest is one that could give just about anyone a headache. The process works much differently than with the personal loan on your home. That being said, interest is interest and not overly complicated to understand. It all comes down to risk.

Which is riskier for a lender - lending on a home worth $500,000 or an apartment complex worth $15,000,000? The answer should be obvious. Even if it isn't to you, it certainly is to the bank. The default on your home loan would be aggravating. The default on the apartment loan would be painful and hurt the balance sheet of the bank. This makes it much riskier and the bank is going to require the borrower to pay much more to get financing for the project.

We are never supposed to speak in absolutes, but I am going to. The commercial mortgage interest rate is always going to be more than that found in non-commercial real property. The risk is elevated and that means the lender wants a reward for taking on that risk. This is particularly true these days, when risk has bankers quaking under their desks as the world seems to implode upon them.

The only exception to this is the government agency backed or issued loans. The government plays a huge role in the mortgage markets, consumer and commercial. Given the need to get the economy rolling again, the rates one can get from Fannie Mae, FHA, Freddie Mac and Ginnie Mae are a steal and a half. Even better, a number of these agencies provide direct funding instead of the usually loan guarantees one expects to see in other types of loans. The time expended from the date of filing the application to the ultimate funding can be long, but is definitely worth it.

What can we say about commercial mortgage interest rates today? They've never been lower. The move by the Federal Reserve Bank to crush rates has set a tone for the entire financial market. Getting into a commercial mortgage now and locking it down is a no brainer. Money is very cheap now. In a few years, one can expect it to become much more expensive. That's why moving now make so much sense.