Commercial Loan Rates Discrepancy

[Prithvi Sri]

I am looking into financing an assisted living facility property with 30% down and my personal guarantee - the loan value is less than my networth. Based on the info, a couple of brokers offered rates of around 4.2%. I was comparing this with the loan rate of 2.5% one of the builders got on a mixed use real estate development - almost ten times bigger size than my deal. In my eyes, loan to me seems a lot more secure compared to the loan to the mixed use developer but why is he getting such an amazing rate while I am paying almost twice as much. Am I not looking hard enough?

[Will Fraser]

Hi @Prithvi Sri, it would certainly seem that the deal you are looking at is more secure than the development play that the builder is looking at.  The discrepancy in rates seems to be related to the backer of the loans.  My guess is:

- 2.5% interest rate loan is backed by Fannie Mae, Freddie Mac, or is being offered by a semi-governmental entity like  credit union.

- 4.2% rate is a very good commercial loan rate, but one that a bank will keep on their books.  These are almost always much higher (relatively) than the advertised mortgage rates AND institutional debt rates.