Commercial and multifamily mortgages are expected to increase in the coming year, because lenders are eager to loan money and borrowers want to take out loans. Results of a survey taken by the Mortgage Bankers Association showed that 100% of top lenders projected increases in loan originations of at least five percent in the next twelve months.
Some of the specific data revealed by the Mortgage Bankers Association survey included details such as:
- Loan risk is expected to increase in the next year, as optimism rises.
- Major investor groups are expected to originate more loans in multiple areas.
- Loan originators expect growth to occur at a more rapid clip than before.
Some of the areas that major investor groups plan to increase loan originations include:
- Bank portfolios
- Mortgage-backed securities
- Freddie Mac and Fannie Mae
- Life insurance companies
Reasons for Increases
There are several reasons why business loans are being applied for and granted more frequently than in past years. The favorable economic climate is due to:
- Lower interest rates overall
- Improving fundamentals
- Property values on the rise
Although those in the business community are obtaining more commercial loans than before, the application process remains a lengthy process. Bankers must perform more thorough due diligence for commercial mortgages than residential mortgages. This is true for a variety of reasons, such as:
- Commercial loans are riskier for lenders.
- Governmental agencies don’t ultimately back commercial loans.
- Interest rates and down payment percentages are higher.
- More stringent requirements are in place for commercial borrowers.
Even with some of these challenges, the outlook for commercial mortgages continues to be positive.
Investors and businesses take out commercial mortgages to acquire new properties, restructure existing loans, and redevelop commercial properties. Some of the properties purchased with commercial loans include:
- Apartment complexes
- Industrial warehouses
- Shopping malls
- Office buildings
- Hotels and resorts
The structures of commercial mortgages are designed to fulfill the needs of lenders and borrowers. These loans often involve thorough underwriting tactics on the part of lenders. Some of the terms and contractual designations of loans that business borrowers should become familiar with include:
- Loan amount
- Interest rate
- Term or maturity
- Prepayment stipulations
- Third-party reports
There are multiple lenders who provide financing for businesses, including:
- Insurance Companies
- Small Business Association (SBA)
- Private lenders
Due to the robust economic situation in the country and in many areas around the world, commercial lending continues to thrive. Many borrowers are eager to take out mortgages to fund growth in their businesses and portfolios and banks expect the trend to continue to increase through 2015.