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What is a commercial mortgage?
The concept of a commercial mortgage is very similar to normal mortgages; the key difference is what the actual mortgage is used for.
Many people require a commercial mortgage when they are looking to buy a commercial property for the use of running their new business or looking for a larger premise as they have out grown their current place. You can also use a commercial mortgage for property development and property extensions.
A commercial mortgage is usually based on a payment term of around 15 years.
What are the costs involved with a commercial mortgage?
Like with any mortgage the interest rate factor plays a key part in the cost of the mortgage. Other costs you need to consider are arrangement fees which can be up to 1.5 per cent of the total mortgage value. A valuation fee and redemption fee may also be applicable in addition to the legal cost that you will need to pay.
What information do you need to provide for a commercial mortgage?
All lenders will need to assess whether or not you are personally credit worthy and as the mortgage is for the use of the business the will normally need specific information about the financial stability of your business.
The lender may request you to provide some level of financial commitment
towards the loan, this is worked out using the loan to value ratio.
Do not be alarmed if the lender requires statement and copies of your business
plan and historic information such as the previous year’s financial
accounts and reporting. The lender will use this information
to make judgment if they are likely to get their payments and recover the
loan over the agreed payment period.
The key advantages of a commercial mortgage
A commercial mortgage allows many people to make a commercial investment and work towards the goal of owning a commercial asset.
The property over the mortgage period can gain in value therefore some people can make and build a healthy level of equity on the property, that can be released in the future for later reinvestment. In addition, any interest that is made on your payments qualifies you for tax deductions.
The potential downfalls of a commercial mortgage.
Once you take on a commercial mortgage there are a number of key areas that you need to remember and account for such as the costs involved. The upkeep and maintenance becomes your responsibility right from fixtures and fittings to the property’s security system.
Depending on which type of commercial mortgage you go for your monthly payments
could go up and well as down. Also, over the years your property may
decrease in value for a number of reasons, this impact can leave some businesses
in a very difficult financial situation.
Where do I find a commercial mortgage?
It is important to remember that a commercial mortgage is a different type of mortgage and may require some specialist assistance. Your task of finding a commercial mortgage on the high street may prove cumbersome, even though many banks and buildings societies have specialist staff and teams to deal with these types of enquires. Many people who need this type of mortgage generally turn to a specialist broker.