Deciding to purchase a commercial property should be an exciting milestone. However, in a highly competitive commercial finance market, distinguishing between seemingly endless lenders, products, features and rates can quickly become a daunting task for medical professionals.
“Unlike home loan products, commercial products don’t advise effective or comparison rates, which makes it difficult to compare apples with apples,” said Andre Karney, head of Investec medical and dental finance.
Understanding the impact of this small difference is usually enough to prompt the borrower to dig into the detail, as the hidden additional costs can represent many thousands of dollars.
“Identifying the true cost of a commercial loan is challenging, and people are understandably often drawn to the lowest interest rate initially quoted. Five per cent certainly sounds more impressive than six at face value, but what happens next depends on the approach of the lender and can vary the end result significantly.”
Unlike home loan products, commercial products don’t advise an effective or comparison rate, which makes it difficult to compare apples with apples
Headline Rates
The first approach used by some institutions is to advertise or market an attractive ‘headline’ rate. This can be subject to a plethora of additional fees and charges with wide ranging descriptions (Figure 1).
“In reality, all of these fees add to the true cost of the loan and should be viewed as forming part of the overall ‘interest rate’. By separating the headline rate from the fees the true interest rate can be harder to determine and the borrower is still mesmerised by the elusive five per cent,” Mr. Karney explained.
By the time all fees have been added, the borrower has invested a lot of time in filling out the appropriate forms and the bank has in all likelihood conducted a valuation and due diligence. This is the point at which the borrower may realise that the final rate has increased significantly more than the ‘headline’ rate they expected. Often they feel obligated to stick with the loan because of the amount of time and effort the process has taken and the fact that the settlement date is fast approaching.
True Rates
The other method financial institutions use is a ‘true’ rate from the outset, where it’s clear what the final rate and cost to the client will be.
“This is the approach we adopt at Investec – we talk to people about the true rate from day one,” said Mr. Karney.
“As specialists in the medical and dental space, we have a unique understanding of our clients and their needs. Knowing how busy they are, we make sure our commercial loan options are as straightforward as possible, to save them time and make the finance process as simple as possible.”
To understand financing options and to enable practitioners to make an informed decision, it’s important to speak to a professional in the industry with experience in financing for healthcare professionals.
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