How can I estimate what the mortgage payment on a commercial building loan will be?
Also, as the price for commercial properties is essentially limitless (i.e. can be in the billions), the kind of financing can be more creative than for smaller purchases, so interest rates can range all over the map. However, I understand that many commercial loans have a floating interest rate tied to the LIBOR plus some number of basis points. I was looking at a loan for LIBOR + 225 basis points (aka LIBOR + 2.25%) but that was for the purchase of a larger property (multiple millions of dollars). I would guess you might be able to take the LIBOR + 3% and get a decent idea. Also, note that your interest rate will also depend on the current tenancy. If the building has pre-existing long-term leases with established tenants, the cash flows are more certain, and thus you may be able to get a lower rate (less risk for the lender). However, if you’re buying a rental property, it may not be negotiable.
Quick answer: Assume interest-only loan, ask around to get a handle on rates, divide rate by 12 and multiply by loan amount to get monthly payment. e.g., Monthly debt service on $1MM @ 12% rate is 1% of $1MM or $10K/month. Long answer: I’ve been out of the business for a few years so it’s possible some of this may have changed, but a lot depends on what kind of building/what kind of use you’re talking about. Terms can vary significantly, so the quick and dirty method is to assume your entire payment covers interest only (I/O or close-to-I/O loans aren’t uncommon on commercial buildings.) You need to get a handle on rates — ask around at commercial real estate agencies and they can probably give you a few guys to call. True commercial lending involves a lot more work than residential, so you should be able to find an originator who’ll give you a few minutes without being afraid of a hard sell – they’ll be feeling you out just as much as you are them. Once you know roughly what kind of
If you’re buying commercial, that means you’re probably above 4 units (at which you’d usually qualify for a residential loan). I’m not sure online people like lendingtree even handle commercial loans — these tend to be pretty specialized, and involve lots of tire kicking before the loan finalizes (called due diligence). Best thing is to ask realtors who list the commercial properties you like for names of mortgage brokers. Then, call them up and see what the rates are. In the meantime, you can use loan rates advertised by the residential lenders as a rough yardstick for your commercial loan — but be sure to pad your estimate with room for rate changes and hidden fees.
