Commercial Mortgage Broker and Business Loan Broker on Vancouver Island and throughout British Columbia
Select Mortgage Corp. #106 - 3122 Jacklin Street, Victoria, BC V9B 0J5
Mortgages, whether on commercial or residential properties, are financial assets providing cash flows and, as such, are routinely bought and sold in the secondary market.
Please note that all mortgage valuations, be they primary or secondary, are affected by the following considerations: location, tenant mix, cash flow, mortgage term, building condition, building history, economic climate, current market interest rates and market interest rate expectations or trends.
For commercial mortgages, there is normally 2 major lending criteria used by a mortgage lender/buyer, with the lesser of the 2 criteria being the approved loan amount:
1. Loan to Value: normally the maximum LTV on commercial buildings is 65% of the lesser of appraised value or lender’s market valuation. Class A buildings can reach 70% LTV.
2. Debt Coverage Ratio: defined as the annual Net Operating Income divided by the annual debt servicing costs or mortgage payments. Normally, this ratio varies from 1.10 to 1.35:1.00
For residential mortgages, there are also 2 loan criteria with the Loan to Value being defined exactly as above. But the ratios are significantly higher, ranging up to 80% for first mortgages and 90% for second mortgages. The borrower's ability to pay is determined by the Gross Debt Service Ratio and the Total Debt Service Ratio. These calculations are the inverse of the Debt Coverage Ratio and are expressed as a per centage (%) and not a ratio.
Most institutional residential lenders use a maximum Total Debt Service Ratio of 45%, while private lenders use whatever they feel comfortable with.
The buyer will normally buy the mortgage for a discounted price, not face value. Unfortunately this can only be determined after the buyer has completed all of his due diligence and calculated his perceived risk.
The mortgage broker's fees are a percentage of the sale price of a mortgage and are normally paid by the seller, as the commission is deducted from the gross proceeds. This fee is based on the broker's time to perform his due diligence and the amount of time and effort it takes to find a buyer for a mortgage.
I offer a free consulting service to my potential clients. For commercial mortgages, if you send me the actual mortgage itself, the current rent roll, the building’s address and the current and 2 prior years of the building operating statements, I will review the marketability of this mortgage. For residential mortgages, please send me a copy of the mortgage and the unit's address. If you decide to proceed, there are other documents required, but these requirments can be addressed later in the process.