A commercial mortgage is an example of a loan that is secured on any property which isn’t residential in nature. Since there is an immense variety in non-residential properties, each potential commercial mortgage is assessed individually and priced according to the risk associated.
When comparing different available options, the following pointers should be analysed for each:
- Consider the maximum loan term – Commercial mortgages often require a balloon payment, which is a total payoff of the loan, in a specific amount of time. Many borrowers sell the property or refinance the loan at that time. Try finding the maximum loan term if you want more time to pay off your commercial mortgage.
- Compare the loan to value ratio – Banks usually allow people to borrow up to 65 percent of the value of the commercial property. Choosing a loan that allows a higher loan-to-value ratio (LVR) enables businesses to borrow more money than a loan with a lower loan-to-value ratio.
- Look at approval times – One can compare commercial mortgages by asking for an estimate on how long it will take the lender to approve the mortgage.
- Ask for a Letter of Intent or Commitment Letter before applying for a loan – A letter of intent will disclose rates and terms so you will have a good idea what you are dealing with in advance and can crunch your numbers to be sure you can confidently enter into a commercial loan agreement.
- Ask about the lender’s appraisal process – To get a commercial mortgage, the lender will want the commercial property to be appraised. Ask what their process is.
- Compare fees – Some lenders will charge an application fee even if they reject the application for a commercial mortgage. Be sure to understand all fees before applying.
- Look at interest rates – As with residential mortgages, one can get a loan with a fixed rate or an adjustable rate. If the idea is to pay the same amount of interest for the length of the loan, one should take a commercial mortgage with a fixed rate. If on the other hand one does not mind paying a different amount in interest from year to year, one should go for an adjustable rate. Comparing the amount of interest to be paid over the entire life of the loan, is generally a good idea!
- Compare the amount required for a down payment – A commercial mortgage will require a deposit, usually of at least 15 or 20 percent of the purchase price.
- Make sure you are comparing non-recourse loans – If the business defaults on the loan, a non-recourse commercial mortgage means that the lender can repossess the property only, and cannot recoup any additional damages from the owner.
- Talk to different lenders about their commercial loans – If the terms are similar for all the commercial mortgages being compared, work with a lender that has a good reputation, or someone the business has worked with before.
- Use online tools to compare mortgage – There are websites that take one’s information and then provides a list of commercial mortgages available. The system reviews the requirements, screens lenders and provides a list of several options.
About the Author: Dominic Lambrinos
Dominic Lambrinos is a financial expert who provides professional business finance solutions, commercial financial engineering, expert review of financial submissions, negotiation, equity raising, business sales, and trade financing. Dominic is also a sought after finance business trainer, and accomplished public speaker.
Under Dominic’s guidance , his team can also prepare professional financial submissions, review financial statements, provide financial accounting, business administration, development of information systems, marketing and sales skills, computer and Internet sales skills.