Intended for those in business, commercial mortgages are essentially business loans made using commercial property as collateral. They can help business people make substantial capital gains from their properties over a long period of time, but are often subject to high interest rates.
What is a Commercial Mortgage?
A commercial mortgage is similar to a traditional, residential mortgage – in that money is borrowed against a property. The sorts of properties intended for commercial mortgages, however, are commercial buildings or other business real estate, and commercial mortgages exist to help those in business purchase new investment property, or finance any existing assets.
The term of a business mortgage is usually between 10 and 25 years, and commercial mortgage lenders can offer borrowers up to 80% of a business property’s value. The application procedure can be a great deal more complicated than with loans for residential properties because of the complex assessment of the creditworthiness of a business.
A commercial mortgage lender will generally look at the past performance, the current position, and the long term plans of a business. Borrowers may be required to provide a detailed business plan demonstrating that they can make the expected repayments, and a professional valuation is usually required before lenders offer business mortgages. Rates will then be quoted to the borrower based on these factors, so the success of a business may determine how high commercial mortgages rates are. If a business venture appears to impose a high risk, its commercial mortgage rate may be set very high, and may rise even further if borrowers leave themselves vulnerable to interest rate increases with a business mortgage on a variable rate (in a similar fashion to standard variable rate mortgages aimed at house buyers).
Commercial Mortgage Brokers
Commercial mortgage brokers are specialists at advising borrowers on the best commercial mortgage interest rates most suitable for their businesses, and are highly recommended due to the varying interest rates associated with commercial property mortgages. A commercial mortgage broker may suggest taking out a commercial mortgage loan on a fixed rate, which will help manage and forecast payments better as interest is fixed at a single rate. However it should be borne in mind that, as with most fixed rate mortgages, the deal is likely to be for a limited period after which rates may become variable.
Advantages of Commercial Mortgages
Commercial mortgage loans are ideal for those looking to buy new business premises, or extend or develop a property. In addition, they enable borrowers to maintain the cash flow for their business by providing the necessary capital to invest in funding growth and expansion. They are often a preferred option over other investment methods, as a commercial property mortgage allows the business owner to keep full ownership of their premises; other options may entail giving up part of the ownership of their business.
Disadvantages of Commercial Mortgages
However, in addition to the potential high interest rates as mentioned previously, a commercial property mortgage borrower may incur additional costs such as arrangement fees and security, and valuation charges will apply. These commercial mortgage fees can be substantial, especially if a quick resolution to the application is required.
Commercial Mortgage Calculators
Before contacting a commercial mortgage broker, a commercial mortgage calculator is recommended to weigh up the pros and cons of taking out a business mortgage. Commercial mortgage calculators will provide the borrower with a quick assessment of whether they can afford the monthly repayments on their commercial property investment.