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This is a short article relating to Commercial Mortgages in
the US.
You can download the full guide to Bridging Finance, Commercial Mortgages
or Buy to Let Mortgages by visiting our Commercial Mortgage Guide page.
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US Commercial Mortgage Basics
Commercial mortgage loans are used when purchasing structures
such as office buildings, apartment complexes, health care
facilities and retail outlets. Whether it’s a hi-rise
tower or a family-owned restaurant, buyers typically need additional
funding to complete the transaction. Commercial mortgages are
what they pursue.
Similar in many ways to residential loans,
commercial mortgages require far more paperwork. Both types
of loan require that the properties being purchased undergo
a thorough appraisal. Both require collateral to secure the
loan and protect the lender against default.
Like residential
mortgages, commercial mortgages can be refinanced to take advantage
of more favorable terms, or they can be re-mortgaged to establish
a line of credit to use for running the business. And like
residential mortgages, the lender will hold the deed to the
property until such time that the loan is repaid in full.
During that time, the lender makes money off the interest
on the loan. If the borrower fails to make payments on the
commercial loan, the lender has the right to initiate foreclosure
proceedings and take the property. Remember, the property
likely is what will be used as collateral. The interest paid
on the commercial mortgage usually is tax deductible; just
be sure to consult with a professional first.
When you apply for a commercial mortgage, you will typically
be offered two different types of loans: fixed rate loans
and variable rate loans. These work the same as they do for
residential mortgages.
On a fixed rate commercial mortgage, the interest rate that
is negotiated and agreed to remains in effect until the loan
is fully amortized. If you’re obtaining a commercial
mortgage and interest rates are heading higher, a fixed rate
likely is a better option. You can always refinance your
mortgage should interest rates go lower than your fixed rate.
With a variable rate commercial mortgage, the interest rate
will fluctuate during the payback period. Interest rates
are determined by the US Federal government. Make sure you
understand how variable rates are determined. Also, find
out from the lender how often the rate on a variable rate
mortgage will change. It’s fine as long as the interest
rate is decreasing; it’s the increases that you need
to worry about. Make sure, too, that should the interest
rates increase, you can still afford the monthly payments.
With some variable rate loans, the rate is fixed for the
first few years, and then converts to a variable rate loan.
When applying for a commercial mortgage, also ask about
the Early Redemption Charge (ERC). Remember, lenders make
money off the interest on the loan. When the loan is repaid
in full sooner than anticipated, the lender loses money.
To avoid losing money, lenders often include an ERC which
can amount to a substantial, one-time sum. If you discover
an ERC in the fine print, try to negotiate it away. If you’re
not successful, take your business elsewhere.
Applying for a commercial mortgage means that you’re
about to make a serious investment. Be sure you know exactly
what you’re signing before you sign the documents.
You have a right to ask questions, renegotiate more favorable
terms and do whatever else you feel is necessary. It’s
your money and your future. Good luck!
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Commercial Lifeline are Commercial
Mortgage and Bridging
Finance specialists.
If you're looking for a Commercial Mortgage in the US try our
trusted
partner
site.
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you like.
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is
include, and that the links above are intact.
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