Mortgage Tips

Commercial mortgage is the loan purchased by a borrower to finance a property for business purposes. The lender has a legal claim over the financed property until and unless the borrower repays the loan in full. With the help of commercial mortgage, one can purchase:

• Shops and offices
• Factories and warehouses
• A piece of land
• A brand new building

Commercial loan can also be used to buy an already existing business. For example, a running hotel or a retail store can be purchased using commercial mortgage. Here are some other aspects of commercial mortgage that are useful to know.

Eligibility Criterion’s

A Commercial Finance expects the borrower to fulfill certain eligibility criterion’s for the loan. For example, a good credit score is one of the most important requirements for the approval of commercial mortgage. Loan-to-value ratio is another thing considered by the lender. It is the expectation of the lender from the borrower to make some contribution in the purchase. Stability and profitability of the borrower’s business is another factor that can affect the lender’s decision to approve commercial finance.

Interest Rate Options

The commercial loans are available with two interest rate options. First is the commercial Fixed Rate Mortgage in which the rate of interest remains unchanged for a fixed term of the mortgage period. The standard variable rates are paid by the borrower once the fixed rate term ends. The second option is the commercial variable rate mortgage, in which the rate of interest changes according to the base rate decided by the Bank of England.

Commercial Mortgage Repayment

One way of repaying the Commercial Mortgage is through a set number of equal payments. Each payment consists of one part as the interest and remainder as the principal. A variation to this is the equal payments with final balloon payment. In this, a set number of small monthly payments are made with a final balloon payment at the end. Interest only payments require the borrower to pay only the interest through monthly payments while the principle is paid as a balloon payment at the end.

Benefits of Commercial Mortgage

The borrower retains the complete ownership of the property. The interest payments on commercial finance are tax-deductibles. Moreover, the borrower has the feeling of owning a commercial property while the monthly payments remain less than or equal to the amount he would otherwise pay as rent.

This is a boon to the small and big business owners of Mortgage. Make sure to deal with a reputed commercial lender.

By: Suzanne Wiiliams