When buying commercial property, you’ll likely need a commercial mortgage similar to a home mortgage. The difference is that unlike residential real estate, commercial real estate refers to property designated for business and the typical commercial real estate loan borrower might be a business owner, developer, or investor.
Commercial real estate loans can be used to finance a new project or to refinance existing projects and spaces. Commercial real estate loans work differently than residential mortgages in terms of structure, underwriting, interest rates, and fees.
What is a commercial real estate loan?
Commercial real estate refers to any income-producing real estate that’s used for business purposes such as offices, retail spaces, hotels, and apartments. A commercial real estate loan is a mortgage secured by a line on a commercial property as opposed to a residential property, though they function more similarly to a residential mortgage than other types of small business loans.
A commercial real estate loan is typically used to purchase, build, refinance, or rehabilitate commercial, industrial, and other non-owner-occupied property including spaces like office buildings, multi-unit rental buildings, medical facilities, warehouses, or even vacant land on which these types of properties can be built. Unlike a residential mortgage in which the underlying asset is the primary residence, commercial real estate loans are underwritten based on the income and expenses that the property will generate.  
How a commercial real estate mortgage is calculated
Commercial mortgage interest rates are the rates your lender will charge you when taking out a commercial real estate loan. There’s no single way to calculate interest rates as it will depend on the platform and loan product chosen but regulators will tend to use one or more common indexes when calculating interest rates. Those indexes are regulated by the Federal Reserve based on market conditions, which means the Federal Reserve can increase or decrease the interest rates.
While indexes for interest rates change continually, commercial interest rates tend to be higher than those for residential loans – typically about 0.5% - 1% higher than the 30-year prime rate for mortgages. The repayment term is also usually shorter for commercial real estate loans which makes them somewhat more expensive than residential loans. Commercial real estate loans also come with closing costs, typically in the amount of 3% - 5% of the amount borrowed.  
Calculate your commercial real estate mortgage