Hi home loan experts,
I want to invest in a commercial property, and will need to borrow about $1 million dollars for that. I have heard that the interest rate for commercial loans may be higher than that or a normal home loan. Is it really true?
I know there are various factors that can affect the interest rate on my loan, but I would like to have a general idea on the rate that typically applies for a commercial loan. I would be indebted if someone could provide me more info on this.
Thanks in advance!
What is the interest rate for commercial loans?
- Otto Dargan
- Mortgage Specialist
- Posts: 7730
- Joined: Sat Sep 06, 2008 5:55 pm
- Location: Sydney, Australia
- Contact:
Re: What is the interest rate for commercial loans?
Hi and welcome to the forums Kafka.
The interest rate for a commercial loan is generally higher than that for a standard home loan. The interest rates for commercial loans are usually negotiated on a case by case basis. The actual rate that you may have to pay depends on the loan amount, your equity position, and the overall strength of the application.
The type of security used for the loan will also have a bearing on the interest rate. If the security is a residential property then the interest rate will be lower than when securing the loan with a commercial property. If you are using SMSF to buy the property then you may have to pay a still higher interest rate.
If you do not have enough evidence of your income then you may have to apply for a low doc commercial loan which will have a much higher interest rate than a standard commercial loan. It may be possible for you to get a lease doc commercial loan which may be offered at a slightly lower interest rate than a low doc loan.
If you are seeking to borrow a large amount then the best option for you may be to get a bank bill loan. The interest rate on this type of loan is linked to the lender’s cost of funds, or the Bank Bill Swap Bid Rate (BBSY). The lender adds a margin to the rate while lending to you. The loan is rolled over at the new BBSY at the end of the 30, 60, 90, or 180 day term.
Cheers,
Otto
The interest rate for a commercial loan is generally higher than that for a standard home loan. The interest rates for commercial loans are usually negotiated on a case by case basis. The actual rate that you may have to pay depends on the loan amount, your equity position, and the overall strength of the application.
The type of security used for the loan will also have a bearing on the interest rate. If the security is a residential property then the interest rate will be lower than when securing the loan with a commercial property. If you are using SMSF to buy the property then you may have to pay a still higher interest rate.
If you do not have enough evidence of your income then you may have to apply for a low doc commercial loan which will have a much higher interest rate than a standard commercial loan. It may be possible for you to get a lease doc commercial loan which may be offered at a slightly lower interest rate than a low doc loan.
If you are seeking to borrow a large amount then the best option for you may be to get a bank bill loan. The interest rate on this type of loan is linked to the lender’s cost of funds, or the Bank Bill Swap Bid Rate (BBSY). The lender adds a margin to the rate while lending to you. The loan is rolled over at the new BBSY at the end of the 30, 60, 90, or 180 day term.
Cheers,
Otto
Re: What is the interest rate for commercial loans?
Thank you for the reply, Otto. I had heard about low doc loans, but this is the first time I have heard of lease doc loan. Could you explain a bit about that?
- Otto Dargan
- Mortgage Specialist
- Posts: 7730
- Joined: Sat Sep 06, 2008 5:55 pm
- Location: Sydney, Australia
- Contact:
Re: What is the interest rate for commercial loans?
Hi Kafka,
You may be eligible for a lease doc loan even without sufficient proof of your current income. You are required to prove evidence that the rental income from the property used as the security will be enough to make the interest repayments on your loan. It is somewhat similar to a low doc loan.
There are several things that you need to know about a lease doc loan such as:
Cheers,
Otto
You may be eligible for a lease doc loan even without sufficient proof of your current income. You are required to prove evidence that the rental income from the property used as the security will be enough to make the interest repayments on your loan. It is somewhat similar to a low doc loan.
There are several things that you need to know about a lease doc loan such as:
- It is possible for you to borrow up to 70% of the property value.
- You do not need to submit any payslips, tax returns, or financial statements.
- You need to use a commercial investment property as the security on the loan.
- There may be a minimum lease term in order for the lease to be acceptable to lenders.
- The lease should not be to your own company, or to a company of a close relative.
- The income from the lease should be enough to cover the interest on your loan.
Cheers,
Otto
Re: What is the interest rate for commercial loans?
Thank you for explaining things to me. It seems that getting a commercial loan is much complicated. I will give you guys a call soon to discuss my loan application.
Re: What is the interest rate for commercial loans?
Hello everyone!
Could someone tell me why people take out a low doc loan if they have to pay a higher interest rate?
Could someone tell me why people take out a low doc loan if they have to pay a higher interest rate?
- Otto Dargan
- Mortgage Specialist
- Posts: 7730
- Joined: Sat Sep 06, 2008 5:55 pm
- Location: Sydney, Australia
- Contact:
Re: What is the interest rate for commercial loans?
Hi Sabrina,
People take out a low doc loan because lenders have stricter criteria while lending to people with their own business. Lenders usually require you to provide tax returns and notices of assessments from the last two years, as well as financial statements and BAS statements. The paperwork may be too much, and there are several reasons that self-employed people get a low doc loan such as:
Cheers,
Otto
People take out a low doc loan because lenders have stricter criteria while lending to people with their own business. Lenders usually require you to provide tax returns and notices of assessments from the last two years, as well as financial statements and BAS statements. The paperwork may be too much, and there are several reasons that self-employed people get a low doc loan such as:
- They do not have up to date tax returns.
- Their income has increased since filing the last tax returns.
- There may be deductions such as depreciation which are not real expenses.
- They have a complex company structure.
- They have distributed income to family members from their trust.
Cheers,
Otto
Re: What is the interest rate for commercial loans?
Oh, I didn’t know that. Thanks for clearing that up.