Commercial Mortgage Financing

Commercial mortgage financing is similar to residential mortgage loans, but there are key differences. When you apply for a commercial mortgage, lenders will check your personal credit and business cash flow to determine if you can repay the loan.


Because commercial mortgage loans are considered more risky than residential, they have higher interest rates. However, you can still get a good deal on a commercial mortgage.

Interest Rates

The interest rates associated with commercial mortgage financing can vary significantly. A number of factors affect the interest rate on a commercial real estate loan, from the type of property to the borrower’s creditworthiness and the strength of the economy. The best way to find a competitive interest rate is to shop around and compare quotes from several lenders.

Many lenders offer specialized commercial mortgage programs for office, retail, and multifamily properties. These loans may be structured as first liens or, if a larger amount of capital is needed, borrowers may be able to secure subordinate financing (structured as either mezzanine debt or preferred equity) to supplement the loan.

Unlike residential mortgages, commercial mortgages are often based on a property’s value and not its income. This makes them more risky for lenders and typically requires a higher deposit and a lower loan-to-value ratio. Additionally, commercial mortgages are usually more costly than residential mortgages and typically have a higher interest rate.

The interest rate on a commercial mortgage can also fluctuate based on market conditions, which is why it’s important to shop around and look at quotes from a variety of lenders. Taking the time to find the best rate can save you thousands of dollars over the life of the loan. You can also find a wide range of commercial mortgage refinance options, which allow you to take out a new loan at a lower rate or change the term and amortization on your current loan.

Down Payments

Commercial mortgage loans usually require large deposits, or down payments, which are typically expressed as a percentage of the total purchase price. This deposit serves two purposes: It mitigates the lender’s risk by increasing their ownership stake in the property and it helps qualify the borrower for a loan with lower interest rates.

Down payment requirements for commercial property differ between loan types and lenders, but in general, they are higher than residential mortgages. Generally, the minimum down payments for commercial mortgages range from 10% to 35% of the property’s purchase price. However, this percentage can vary considerably based on the type of property, loan-to-value (LTV) ratio, credit qualifications and personal financial situation of the borrower.

Conventional mortgages, such as those offered by Fannie Mae or Freddie Mac, and non-recourse HUD multifamily loans have the highest minimum down payment requirements. These loans also have the longest repayment terms. Private and hard money commercial loans may have more flexible down payment requirements, but they usually offer shorter repayment terms.

To secure commercial mortgage financing, the borrower must research potential lenders who specialize in this type of lending. These include banks, credit unions, commercial mortgage brokers and private lenders. During the application process, the lender will review detailed information about the property, business plan and financial history of the borrower to assess creditworthiness and investment goals.

Repayment Periods

A commercial mortgage is a loan secured by a business property. It can be used to purchase commercial real estate, build new buildings, renovate existing ones or expand a company’s operations. This type of financing is usually offered by banks, private investors and some government-sponsored programs. It is typically harder to qualify for than a residential mortgage, and lenders will perform extensive background checks on applicants as well as review their business credit history. It may be possible to obtain alternative commercial refinancing options if you are unable to meet lender requirements.

In addition to a thorough financial review of your company, lenders will often require that you provide collateral for the commercial mortgage loan. Collateral can include other assets owned by the borrower as well as business equity. Collateral is a safety measure to protect the lender in case you fail to repay your loan.

Like any other type of loan, commercial mortgages have different repayment terms. Many times they do not fully amortize over the term of the loan, and may end with a balloon payment that requires you to pay off the entire remaining balance of the loan at the end of the term. Most lenders will also have a lockout period that prevents you from paying the loan off before it comes due, which is something to keep in mind when negotiating the terms of your commercial mortgage.


There are several fees associated with commercial mortgage financing. These include an origination fee and a brokerage fee. The origination fee is a charge by the lender to cover the cost of processing the loan. The brokerage fee is a commission charged by the broker and varies by individual.

In addition to these fees, there are additional costs that may be incurred as part of the process, such as legal and appraisal fees. The amount of these costs will vary depending on the size and complexity of the transaction.

Commercial mortgages are an excellent option for business owners who need to purchase property and are unable to afford the cash required to make the purchase. By purchasing commercial property with a mortgage, businesses can start earning returns on the investment right away, which can help offset the monthly mortgage payments.

However, before you can qualify for a commercial mortgage, it is important to have a high credit score and a solid business plan. The underwriting process will take into account your personal and business credit history, global cash flow, and tax returns. Additionally, lenders will want to see that you have enough savings to make a down payment on the property. In some cases, lenders may require a down payment of up to 50 percent. These requirements are typically lower than those for traditional home loans.