These days with all the private money entering the market place, its not uncommon to see a commercial deal prices one or two percentage points above comparable bank or institutional rates where the typical spread between private mortgage interest rates and bank interest rates is considerably higher.
And if you go one step further and calculate an all cost in effective rate, a private mortgage lending solution can even be cheaper in some cases, although that can be very hard to determine from the outset. This is due to the fact that bank and institutional lenders that provide commercial mortgages will all have more third party cost demands required to approve the mortgage and maintain it over time compared to most private lenders.
A higher standard of care associated with lower rate commercial mortgages can lead to considerably more costs which when added into the cost of financing may not end up being cheaper at all.
Even if the effective rate on private money is higher, it may not be very much higher, and if there is added benefits received from a private mortgage such as speed to closing, then the added cost can be more than worth it.
Like with any type of mortgage financing, rate is a function of risk, and the lower the risk associated with the financing request for the property, the lower the potential rate that can be secured.
The real wild card to getting a solid rate for a private commercial mortgage is working with the right private lender.
Even though we can all equate rate to risk, each private lender will have their own costing table for the money they are prepared to put out in the market and many times, there is no reduction for risk which allows them to secure a better deal with a healthy profit margin.
The key then is to find the private lender that is the best match for your commercial mortgage financing requirements.
The best way to achieve this is to work through an experienced private mortgage broker who has lenders that will fund commercial deals in the same slice of the market that you are vested in. And even though a private mortgage on commercial property is going to be faster to get in place through a private money lender compared to a bank, its still going to take time.
So you want to make sure you’re focused in on the right type of private lender so you don’t end up having to take a less than optimal deal from the wrong one because you’re running out of time.
If you’d like to know more about commercial mortgage rates for a commercial property requirement you have, I suggest that you give me a call so we can go through your requirements and determine what type of bank and private mortgage rates are likely going to be available to you.