Commercial mortgage rates can be structured in various ways, depending on the lender and the borrower’s needs. Here are some common types of commercial mortgage rates:
- Fixed-Rate Mortgages: With a fixed-rate mortgage, the interest rate remains constant throughout the loan term. This provides borrowers with predictability and stability, as the monthly payments do not change. Fixed-rate mortgages are particularly suitable for borrowers who want to lock in a specific rate and budget their payments accordingly.
- Floating or Variable-Rate Mortgages: Floating-rate mortgages, also known as variable-rate mortgages, have interest rates that fluctuate over time. These rates are usually tied to a benchmark, such as the Prime Rate or the Secured Overnight Financing Rate (SOFR). The interest rate can change periodically, typically in line with market conditions or changes in the benchmark rate.
- Hybrid Mortgages: Hybrid mortgages combine elements of fixed and floating-rate mortgages. These mortgages typically have an initial fixed-rate period, after which the interest rate becomes variable. For example, a 5/1 hybrid mortgage would have a fixed rate for the first five years, followed by a variable rate for the remaining term.
- Interest-Only Mortgages: Interest-only mortgages allow borrowers to make payments that only cover the interest portion of the loan for a specified period. This can provide flexibility in managing cash flow, especially for commercial properties with fluctuating income streams. However, borrowers should be aware that interest-only periods are typically followed by higher monthly payments that include both principal and interest.
Each type of mortgage has its advantages and considerations. Borrowers should carefully evaluate their financial goals and risk tolerance to determine which type of rate structure is most suitable for their needs.