Tap to get financing
Commercial Real Estate Loans
Loan Options
Permanent FinancingLoans Under $1MBridge LoansMezzanine FinancingConstruction LoansUSDA 538 Loan ProgramLife Company LoansSBA 7(a) LoansSBA 504 Loan ProgramFannie Mae LoansFreddie Mac LoansCMBS LoansHUD Multifamily LoansFix and Flip LoansHUD 223(f) LoansHUD 221(d)(4) LoansHUD 223(a)(7) LoansHUD 241(a) LoansHUD 232 LoansHUD 232/223(f) LoansHUD 232 LEAN LoansHUD 232/223(a)(7) Loans
Property Types
All Property TypesRetailOfficeIndustrialApartmentsSelf StorageHotelLandChurchSchoolAuto DealershipAuto Repair ShopCar WashGas StationHealthcareMedical OfficeDental OfficeVeterinaryFitness CenterBowling AlleyConvenience StoreDay Care CenterGolf CourseAnchored Strip CenterRestaurantMarinaWarehouseFuneral Home
Resources
BlogCurrent Mortgage RatesForms and TemplatesCommercial Property for SaleCommercial MLS GuideGlossaryVideo LibraryApply OnlineHow to Get a CRE LoanFrequently Asked Questions
Calculators
Commercial Mortgage CalculatorCap Rate CalculatorNOI CalculatorDSCR CalculatorLTV CalculatorLTC CalculatorDebt Yield CalculatorYield Maintenance CalculatorInternal Rate of Return Calculator
About Us
About UsLeadershipTeamContactWe're Hiring
Get financing
Newly Published
Mar 17 at Commercial Real Estate Loans
Top 10 Commercial Real Estate Lenders of 2023
Mar 15 at Commercial Real Estate Loans
Top 4 Refinancing Loans for Industrial Real Estate in 2023
Feb 20 at Commercial Real Estate Loans
How to Set Rent Rates for Your Commercial Property in 2023
Explore the Janover Network
Mar 20 at Multifamily Loans
Multifamily Minute Reader Reflections: How Will Bank Failures Impact Multifamily?
Mar 14 at Multifamily Loans
Multifamily Minute Reader Reflections: How Big Are We Buying?
Feb 27 at Multifamily Loans
Multifamily Minute Reader Reflections: When Do You Start the Refi Process?
Was This Article Helpful?
Commercial Real Estate Glossary
Last updated on Feb 19, 2023
1 min read

Interest Rate Caps in Commercial Property Loans

An interest rate cap is used to limit the risk on a floating rate commercial property loan. A floating rate property loan has a variable interest rate, borrowers usually opt for this type of loan during periods of low-interest rates, because if the interest rate decreases further than the borrower benefits. A floating interest rate can also increase and that may be a huge financial risk if it increases rapidly or by too much. For this reason, borrowers try to cap the amount by which interest on the loan increases.

Better Financing Starts with More Options Start Your Application and Unlock the Power of Choice. Click Here to Get Quotes →$1.2M offered by a Bank at 6.0%$2M offered by an Agency at 5.6%$1M offered by a Credit Union at 5.1%Click Here to Get Quotes
In this article:
  1. What are Interest Rate Caps in Relation to Floating Rate Commercial Property Loans?
  2. Want to learn more? Fill out the form below to speak with a commercial real estate loan specialist today.
  3. Related Questions
  4. Get Financing

What are Interest Rate Caps in Relation to Floating Rate Commercial Property Loans?

An interest rate cap is used to limit the risk on a floating rate commercial property loan. Since a floating rate property loan has a variable interest rate, borrowers usually opt for this type of loan during periods of low interest rates. This is because if the interest rate decreases further, than the borrower benefits. A floating interest rate can also increase, potentially creating a huge financial risk if it increases rapidly or by too much. For this reason, borrowers try to cap the amount by which interest on the loan increases.

The interest rate cap may apply during a specific period of the loan or its entire lifetime. An interest cap gives the benefits of potentially lowered rates should they decrease and the security of a ceiling should they increase. For example, a borrower can get a 10-year commercial property loan which charges 4% interest with an interest rate cap of 7%. The interest rate can go up or down but will not go above 7%.

Want to learn more? Fill out the form below to speak with a commercial real estate loan specialist today.

Related Questions

What is an interest rate cap in a commercial property loan?

An interest rate cap is used to limit the risk on a floating rate commercial property loan. Since a floating rate property loan has a variable interest rate, borrowers usually opt for this type of loan during periods of low interest rates. This is because if the interest rate decreases further, than the borrower benefits. A floating interest rate can also increase, potentially creating a huge financial risk if it increases rapidly or by too much. For this reason, borrowers try to cap the amount by which interest on the loan increases.

The interest rate cap may apply during a specific period of the loan or its entire lifetime. An interest cap gives the benefits of potentially lowered rates should they decrease and the security of a ceiling should they increase. For example, a borrower can get a 10-year commercial property loan which charges 4% interest with an interest rate cap of 7%. The interest rate can go up or down but will not go above 7%.

How do interest rate caps work in commercial property loans?

An interest rate cap is used to limit the risk on a floating rate commercial property loan. Since a floating rate property loan has a variable interest rate, borrowers usually opt for this type of loan during periods of low interest rates. This is because if the interest rate decreases further, than the borrower benefits. A floating interest rate can also increase, potentially creating a huge financial risk if it increases rapidly or by too much. For this reason, borrowers try to cap the amount by which interest on the loan increases.

The interest rate cap may apply during a specific period of the loan or its entire lifetime. An interest cap gives the benefits of potentially lowered rates should they decrease and the security of a ceiling should they increase. For example, a borrower can get a 10-year commercial property loan which charges 4% interest with an interest rate cap of 7%. The interest rate can go up or down but will not go above 7%.

Your interest rate will depend on your loan-to-value ratio (LTV), type of business, credit score, and overall financial health and stability. In addition to a 20% - 30% down payment, you will also need to pay other upfront fees, like:

  • Property appraisal
  • Survey fees
  • Legal Costs
  • Loan origination

The Commercial Loan Broker helps the borrower understand the loan and its guidelines, prepares a loan application that can increase your chances for success, and represents the borrower’s interests throughout the process.

What are the benefits of an interest rate cap in a commercial property loan?

The greatest benefit of an interest rate cap in a commercial property loan is that it limits the risk of a floating rate loan. Since a floating rate loan has a variable interest rate, borrowers usually opt for this type of loan during periods of low interest rates. An interest rate cap gives the benefits of potentially lowered rates should they decrease and the security of a ceiling should they increase. For example, a borrower can get a 10-year commercial property loan which charges 4% interest with an interest rate cap of 7%. The interest rate can go up or down but will not go above 7%.

What are the risks associated with an interest rate cap in a commercial property loan?

The main risk associated with an interest rate cap in a commercial property loan is that the interest rate could increase significantly at the end of the interest-only period when you are required to start paying both principal and interest. Additionally, if the property’s value decreases, you could find yourself underwater on your loan – owing more than the property is worth. Before taking out an interest-only loan, be sure to speak with a qualified commercial real estate broker to discuss all of the risks and benefits associated with this type of financing.

What are the different types of interest rate caps in commercial property loans?

Interest rate caps are used to limit the risk on a floating rate commercial property loan. The interest rate cap may apply during a specific period of the loan or its entire lifetime. An interest cap gives the benefits of potentially lowered rates should they decrease and the security of a ceiling should they increase. For example, a borrower can get a 10-year commercial property loan which charges 4% interest with an interest rate cap of 7%. The interest rate can go up or down but will not go above 7%.

The different types of commercial loans and their rates are as follows:

Loan Type Interest Rate Term Best For
Conventional Loan 4.5% - 5.5% 5 - 25 years Investment properties, owner-occupied properties, and properties in need of significant repairs
Government-Backed Loan 3.5% - 4.5% 5 - 25 years Owner-occupied properties, investment properties, and properties in need of significant repairs
Portfolio Loan 5.0% - 6.0% 5 - 25 years Owner-occupied properties and investment properties
SBA 7(a) Loan 6.5% - 7.5% 10 - 25 years Owner-occupied properties, investment properties, and businesses in need of working capital
SBA 504 Loan 4.0% - 5.0% 10 - 20 years Owner-occupied properties and businesses in need of long-term, fixed-rate financing
USDA 538 Loan 3.5% - 4.5% 10 - 30 years Owner-occupied properties in rural areas
Bridge Loan 7.0% - 8.0% 6 - 24 months Investment properties and properties in need of significant repairs
Mezzanine Loan 8.0% - 9.0% 1 - 5 years Properties that need additional financing beyond a first mortgage
Construction Loan 5.0% - 6.0% 1 - 3 years Properties that are being built or renovated
USDA 538 Loan 3.5% - 4.5% 10 - 30 years Owner-occupied properties in rural areas
Life Company Loan 4.0% - 5.0% 5 - 25 years Owner-occupied properties and investment properties
Fannie Mae Loan 4.0% - 5.0% 5 - 25 years Owner-

How can I find the best interest rate cap for my commercial property loan?

The best way to find the best interest rate cap for your commercial property loan is to compare different loan products from different lenders. You can use online commercial loan calculators to get an estimate of the interest rate cap for different loan products. For example, you can use Multifamily Loans' Cap Rate Calculator to get an estimate of the cap rate for your loan. Additionally, you can work with a professional financial advisor to come up with a plan that makes the most sense for your business goals and your budget.

In this article:
  1. What are Interest Rate Caps in Relation to Floating Rate Commercial Property Loans?
  2. Want to learn more? Fill out the form below to speak with a commercial real estate loan specialist today.
  3. Related questions
  4. Get Financing
Categories
  • Commercial Property Loans
  • CRE Loans
Tags
  • interest rates
  • Commercial Property Loans
  • interest rate cap
  • Floating Rates
  • cap rates

Getting commercial property financing should be easy.⁠ Now it is.

Click below for a free, no obligation quote and to learn more about your loan options.

Get financing →
Janover logo

Commercial Real Estate Loans is a Janover company. Please visit some of our family of sites at: Multifamily Loans, Multifamily Today, Commercial Real Estate Loans, SBA7a Loans, CMBS Loans, Apartment Loans, HUD Loans, HUD 221d4 Loan, HUD 232 Loan, HUD 223f Loan, HUD 223a7 Loan, SBA Express Loans, SBA 504 Loans, and OpportunityZones Help.

Janover Inc.

6401 Congress Ave
Ste 250
Boca Raton FL 33487

hello@commercialrealestate.loans

Commercial Real Estate Loans

Eligible Property Types
Mortgage Rates
Commercial Loan Calculator
Glossary

Site Information

Privacy Policy
Terms of Use

This website is owned by a private company that offers business advice, information and other services related to multifamily, commercial real estate, and business financing. We have no affiliation with any government agency and are not a lender. We are a technology company that uses software and experience to bring lenders and borrowers together. By using this website, you agree to our use of cookies, our Terms of Use and our Privacy Policy. We use cookies to provide you with a great experience and to help our website run effectively.

Freddie Mac® and Optigo® are registered trademarks of Freddie Mac. Fannie Mae® is a registered trademark of Fannie Mae. We are not affiliated with the Department of Housing and Urban Development (HUD), Federal Housing Administration (FHA), Freddie Mac or Fannie Mae.

Copyright © 2022 Janover Inc. All rights reserved.