What rates are you getting for commercial loans in Ontario?

[Kiril Nikolaev]

Hi all, in Ontario Canada, can you share what your experience has been like with commercial loans on multi-family small buildings (8-12 units for example) with 80% LTV?

Is it somewhat similar to residential or higher rates?

Also, how has your experience been like? Is it easy to qualify assuming you get a property with over 5% cap rate?

I've never gotten such a loan yet. Only residential for now, but was wondering what the possibilities are.

[Jordan Perry]

Hey @Kiril Nikolaev

Mortgage Associate here. The rates are typically higher than residential (3.9-8% currently for 5 yr terms), but with CMHC insurance, the rates are much lower and you can put as little as 15% down which also gives you the option to extend your amortization out to up to 35 yrs ( depending on the property). 

On a conventional loan you will have to put down at least 25%. If the debt service ratio exceeds 1.2 (usually this is a common metric for lenders to use) than you will have to increase your downpayment which decreases your monthly payments to meet their expectations and risk tolerances. With how hot the market for commercial properties is in Ontario specifically, usually buyers find that more of a downpayment if required due to the lack of cashflow at the price point. 

You will find that often times that qualifying for a commercial loan will be easier that a residential loan (/if the property has strong financials), as they primarily qualify the property as opposed to the borrower. Cap rates that appraisers will use to value your property are location specific and of course, market timing specific. If the prices of commercial property goes up, Cap rates are forced to compress. The same is true inversely. If you would like to know more about Cap rates in your area, reach out to a commercial appraiser! They are usually happy to give free advice before you buy, as they want your business. With commercial loans, another great aspect is that the borrower gets to pick the appraiser and approve the appraisal report before sending to the lender. 

On one occasion, I got an appraisal I was not happy with, and sent it back, stating where he was incorrect. He ended up agreeing with my reasoning, so I was able to add an additional $40,000 to the value. 

Hope that helps!

If anyone has any other questions I would be happy to answer them to the best of my ability!