What is a Commercial Mortgage?
A commercial mortgage is a mortgage loan that is connected with commercial property such as a shopping center, an apartment complex, an office building, etc. The profits that are obtained from a commercial mortgage are used to obtain, refinance or redevelop commercial property.
There is some confusion where a residential mortgage is believed to be the same as a commercial mortgage. The main difference between a commercial mortgage and a residential mortgage is that the value of the land or property is typically much larger than the type of land or property used for a residential mortgage. Another difference is that because of the amount of variation that there is with different types of land and premises, commercial mortgages are usually not pre-set products like residential mortgages typically are.
There are several different options as to how to obtain a commercial mortgage, all of which depend on what type of lender you are working with. Finding a commercial mortgage can take some time and research, but you should find a lender that will meet your particular needs or desires. A local mortgage broker can help at this stage of decision making. Before starting the search, there are certain documents that are needed in order to apply for a commercial mortgage. You will need at least a recent bank, liability and asset statements records, current and projected performance figures, the details of the partners and directors that you are working with, and your tax returns for a period of three years or more.
When it comes to commercial mortgages, there are payment plans that have terms which vary on how long they are. Some plans have three-year terms, while other plans may have a term as long as 25 years. The average term for a commercial mortgage is around 15 years. The way the length of terms are determined is based on the size and value of the property has, or whatever amount of available deposit you have, with many lenders offering commercial mortgages at a variable rate. Make sure to be careful of complex clauses or directives where there are greater risks to the borrower, so when in doubt contact your mortgage broker for further assistance in the decision process.
The cost of deposits for commercial mortgages vary based on various factors, but commercial mortgage deposits typically cost around 30% of the property’s value. The type of business you run can also affect how much your deposit will be. Some lenders may ask for more money based on the banks determination of high risk. You could also obtain a part-commercial mortgage which is a mortgage for a property that is half business as well as half residential, such as a home above a bar, or offices that are partially converted into apartments. These types of properties tend to be outside standard commercial mortgages or residential lender terms, so they usually require unique mortgage products. The rates for these types of properties can also vary, but lenders tend to prefer borrowers who have had experience in running commercial properties. People who have owned more than one property for a minimum of two years or more also tend to receive good deals.
While commercial mortgages are offered for most businesses, those that explore lending options for businesses deemed high risk or poor investments may struggle to get a commercial mortgage.
Another important note are fees that come with obtaining a commercial mortgage. When applying you need to consider fees such as legal costs which include insurance, surveys, loan arrangement fees, valuation fees, etc. As stated previously, when you have any questions or concerns regarding information about getting a commercial mortgage, a local mortgage broker can give you much more detailed advice based on your unique circumstances and business.