Interest Rate


Interest Rate

The interest rate for commercial mortgages may be fixed-rate or floating rate. Market interest rates as well as underwriting factors greatly affect the interest rate quoted on a particular piece of commercial real estate. Interest rates for commercial mortgages are usually higher than those for residential mortgages.

Fixed interest rate is where the interest rate doesn’t change for a set period of time. They tend to be slightly lower than the floating rate, however it may not be possible for you to make additional lump sum payments or pay off the whole mortgage during this time. Floating interest rate is where the interest rate varies as your lender responds to changes in economic and monetary circumstances. Your repayments will move up and down as the interest rate changes, however you can normally make additional lump sum payments or pay off the whole mortgage at any time.

There are other types of interest rates. The common one used for life insurance companies is the: 30/360 interest rate. The 30/360 interest rate is an interest rate accrual method in which the interest calculation assumes that all 12 months of a calendar year have 30 days and uses a 360-day year.

An actual/360 interest calculation charges interest for all 365 calendar days using a 360-day year. Therefore, borrowers pay 5 days less interest than under actual/360. The actual/360 interest calculation produces an effective interest rate that is about 8 to 12 basis points higher than that produced by the 30/360 interest calculation.

This entry was posted in . Bookmark the permalink.