By : Radu Arvatescu
You can use a mortgage to buy commercial property that will be used in the course of your business. If you’re looking for a loan for a new property or expansion, you’ll need to know the options available.
Commercial mortgages differ significantly from residential ones. They are rarely taken out by individual borrowers with full liability. In most cases, they are purchased by partnerships or companies with limited liability. This introduces risk to lenders, so rates are slightly higher than the residential market.
Despite rates not being as attractive, you can find great deals in Ontario and other Canadian provinces. Learn about the different types of mortgages before you explore the market.
Four Options When Seeking a Mortgage to Buy Commercial Property
The basic mortgage types fall under four distinct categories. The right one for you depends on your business needs and finances.
- Variable Rate Commercial Mortgages: You can use a variable rate mortgage to buy commercial property, allowing you to take advantage of changing interest rate conditions. These mortgages are highly attractive when rates are low and heading downwards. However, there is a risk involved. If interest rates reverse the trend and move upwards, your mortgage repayments will become less affordable.
- Fixed-Rate Commercial Mortgages: Fixed-rate mortgages are the most common. The rate agreed at signing is the same rate you will pay for the entire term. This makes repayments predictable, which can be beneficial if you are establishing a business with unproven revenue. The downside is that you will continue to pay the same rate even if market conditions change. While refinancing in the future will be an option, it will introduce new exploration and closing costs.
- Commercial Balloon Mortgages: Balloon mortgages come with a high amount of risk, but they could suit if you have limited capital and aren’t ready to commit to amortization payments right away. A balloon mortgage starts with extremely low repayments, with the intention of settling a significant portion of the loan at the end of the term. You can pay above the minimum to reduce the final payment, which makes this type of mortgage flexible. A balloon mortgage could also be ideal if you plan to refinance in the future.
- Limited Interest Only Commercial Mortgages: An interest-only mortgage comes with a fixed term where you only maintain interest payments. At the end of the first term, you will continue to pay the interest along with amortization on the principal. This can be an effective starter mortgage for a small but growing business.
Fixed-rate will always be the most popular mortgage to buy commercial property, but the other options do have value. Ultimately, you need to look at your current financial situation and future projections to find what is right for you.
Work with a Mortgage Broker to Get the Best Options
A licensed broker can find the best mortgage to buy commercial property, with more options than you will find through individual lenders. You can leverage a large network of banks and private lending institutions, as well as the general expertise of a broker surrounding the real estate and financial law.
Working with a broker results in better overall packages with competitive rates. Ontario’s real estate market can be complicated. When factoring in the mortgage application process, it’s easy to get overwhelmed.
A broker will offer the easiest way to secure financing on your next commercial asset.
Lowest Residential Mortgage Rates in Canada*
|Term||OUR RATE||TD Bank Rate|
|3 Year Fixed/ 25 yrs||5.89%Promo||6.53%|
|4 Year Fixed/25 yrs||5.54% Promo||6.32%|
|5 Year Fixed/ 25 yrs||5.39% Promo||5.81%|
|5 Year Variable/ 25 yrs||6.20% Promo||7.15%|
|5 Year Fixed/ 30 yrs||5.99% Promo||6.39%|
|5 Year Variable/30 yr||6.80%||7.25%|
|3 Year Fixed/30yr||6.64% Promo||6.81%|
|**NEW RENTAL 5 Year Fixed /30yr||6.44% Promo||6.44%|
|** NEW RENTAL 3 Year Fixed /30yr||6.68% Promo||6.68%|
Updated: DEC 05 , 2023
* Current promotion rates may provide an additional 0.05% discount or may be anytime discontinued at the Lender discretion.Some condition may apply.Rates may vary between geographic regions and the posted rates on this website may not be available in your area.TD Bank rate used for comparable are the rate listed in the Broker Chanel Portal by TD Canada Bank at the date above. Please contact our MCI office for more details and current promotions.
LOWEST REGULAR RATES IN CANADA* * Current promotion rates may provide an additional 0.10% discount. Rates may vary between geographic regions and the posted rates on this website may not be available in your area. Please contact our MCI office for more details and current promotions.