Commercial Mortgage Basics

By Morgan Bailey

A Commercial mortgage is a loan made using any real estate property, except residential building as security. These are not taken by individuals’ borrowers but by businesses. If the borrower is not in a position to pay the installment, then the creditor has the right to seize the property which was shown as security. In residential loans the payback time frame is high. But majority of commercial mortgages requires the borrower to pay monthly installments for a particular time frame like 7 or 10 years. So people believe that these commercial loans are riskier than residential loans. Some common ways to use commercial mortgage are to acquire land, acquire commercial properties, to expand existing facilities or to invest in commercial and residential properties.

If people need a commercial mortgage, they have to satisfy the source from which they get the loan. Customers should have sufficient cash to make the required payments. If you consider the mortgages in United States, the lenders will select the customers who have a positive credit history. There is one more criteria that the customers should satisfy.

I.E. they should show that the business is creditworthy. The lender should believe that the business will be profitable. The eligibility for a loan also depends on the type of business the customer is running. For many commercial mortgages the interest is usually high. This interest stays constant throughout the term. These mortgages require more paperwork than residential mortgages.

There are two types of mortgage loans:

1. Fixed Rate Loan

2. Variable Rate Loan.

In a fixed rate commercial mortgage the agreed interest rate will remain the same until full loan is amortized. In variable rate loan the interest rate varies during the payback period. The customer should make sure that he understood the criteria with which the interest rate varies. While taking a commercial mortgage the customer should know about Early Redemption Charge (ERC).If the customer payback the loan sooner than expected, then the lender loses some money. So the lender charges some amount which is called ERC.

Once the customer gets all the documents filled, the lender will decide on the type of loan he needs to get. Before going to a lender, the customer can approach a broker. These brokers know what the lenders look for. So the customer can get a commercial loan approved very quickly.

If you take countries like UK, we can see one more layer of lenders. These lenders provide support to the primary lenders. These lenders don’t have any control or contact with the customer.

For more information on bridging loans, check out the info available online; these will help you learn to find the commercial mortgages!

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