What a Commercial Mortgage Actually Costs

A commercial mortgage costs more than the headline interest rate suggests. Origination fees, appraisal, environmental, title, legal, and various third party costs stack on top of the interest expense. Understanding the full cost of commercial debt helps Macomb County borrowers evaluate loan proposals accurately and compare offers on an apples to apples basis rather than getting misled by rate quotes alone.

The interest rate itself. Conventional commercial mortgages in Macomb County currently price at 7 to 8.5 percent on 25 year amortization with 5 or 10 year balloon terms. Rates vary by property type, borrower strength, loan size, and lender. SBA 504 CDC pieces price fixed at long term rates. SBA 7(a) prices variable at Prime plus a spread. Agency multifamily through Fannie Mae or Freddie Mac often prices tighter than conventional commercial for qualifying properties.

Origination fees. Most commercial lenders charge origination of 0.5 to 1.5 percent of loan amount. A $1.8 million loan with 1 percent origination costs $18,000 in fees at closing. Some lenders build origination into the rate rather than charging separately. Comparing rate plus fees together shows the true cost. Life company and CMBS loans sometimes carry lower origination but higher legal or servicing costs.

Third party costs. Appraisal runs $3,000 to $8,000 for typical commercial properties. Environmental Phase I runs $2,500 to $4,500. Property condition assessment runs $2,500 to $6,000. Survey runs $1,500 to $5,000 depending on parcel complexity. Title insurance runs $2 to $4 per $1,000 of loan amount. Legal fees run $4,000 to $18,000 depending on deal complexity. Michigan attorney close requirements add both buyer’s and seller’s attorney costs. Total third party costs on a $1.8 million acquisition run $18,000 to $35,000.

Ongoing costs. Property tax escrow requirements. Insurance escrow requirements. Annual financial reporting requirements. Property inspection rights the lender may exercise. Ongoing servicing fees on some loan structures. Prepayment penalties if the loan is paid off before maturity. Yield maintenance or defeasance on some commercial loans can add significant cost to early payoff or refinance.

Prepayment structures. Step down prepayment penalties starting at 5 percent in year one and declining by 1 percent per year are common. Yield maintenance formulas compensating the lender for lost interest are common on 10 year commercial loans. Defeasance requires replacing the loan collateral with treasury securities producing equivalent cash flows and can cost 5 to 15 percent of loan balance depending on rate environment. Understanding prepayment provisions matters because most commercial owners eventually refinance or sell.

The Macomb County context. Michigan property tax uncapping at sale affects post closing NOI, which affects DSCR covenants throughout the loan term. Local Michigan lenders including Comerica Bank, Fifth Third Bank, Huntington Bank, and community banks have active commercial lending programs. Regional banks and life companies also lend actively on larger deals. Michigan is an attorney close state, which somewhat increases legal fees compared to title company only states.

TDG Commercial, known as top commercial realtors in Macomb County, works with borrowers and lenders across Michigan to structure commercial financing that fits both the property and the borrower situation.