Why are commercial mortgage rates higher than residential?
Commercial properties are riskier. An individual will do almost anything to save their home, and if they lose it, someone will probably buy it pretty quickly. A business owner or landlord, due to economic pressures or bad management or creditors, may have to shutdown and let the lender take over the property. There is greater cost and risk to a commercial property for a lender, both in loan size and in disposing of the property. Greater risk means a greater return is needed which means a greater interest rate. As a solution, longer amortizations help keep payments lower and a shorter term such as five years permit the lender to reduce rates further since the loan will balloon out and return the capital to the lender sooner.
