Best Mortgage Deals
Advice, help, information and guidance on the best mortgage deals available

Commercial Mortgages

best mortgage deals by AnnaFinding the best mortgage deals if you are buying commercial property for business use, is not that easy, since most are tailored to your own particular requirements.

So comparing one lender with another is much more difficult as the various terms and lending criteria will vary from bank to bank, depending on their view of the market.

When commercial property is seen as secure and a good investment, then the terms will be more favourable, and in tough economic times there will be far fewer lenders.

Best Mortgage Deals - Commercial Mortgages Overview

A commercial mortgage is very similar to a residential mortgage, except the collateral in this case is a commercial building or other business real estate, not residential property. In addition, commercial mortgages are typically taken on by businesses instead of individual borrowers. The borrower may be a partnership, incorporated business, or limited company, so assessment of the creditworthiness of the business can be much more complicated than is the case with residential mortgages. As the lender is dependant on the business to repay the loan, then they will often require the directors of the company to provide personal guarantees. A personal guarantee provides the lender with additional protection, so that in the event of a default on the loan, then the lender has the option to make a personal claim against the directors or owners of the business. Common applications of commercial mortgage loans include acquiring land or commercial properties, expanding existing facilities or refinancing existing debt.

Most banks and building societies offer commercial mortgages, but you must satisfy the lenders' criteria. Some lenders may accept applications where there is an adverse credit history, but most require a positive personal credit rating and clear evidence that your business is creditworthy. Most will apply a loan-to-value ratio and will expect you to invest a proportion of your own money in the purchase. The more you are willing to invest of your own money, the greater the chance you will have of securing a loan for the remainder. The lender's decision will also depend on your current business circumstances - a commercial lender will expect your business to be stable and profitable. They may ask to see your business plan and long-term financial projections, to assure themselves that your business has, and will continue to have, the ability to make repayments on the loan.

Best Mortgage Deals - Types Available

Commercial mortgages are structured in several different ways but the two most important aspects to consider are the interest rate and the repayment schedule for the mortgage. The best mortgage deals for you will depend on your business profile but the simplest are fixed rate, and variable rate. These work in exactly the same way as residential mortgages and often include an ERC ( early redemption charges) so be careful. Try to negotiate these out if possible, or alternatively look for another lender. Generally the fixed rate will revert to a variable rate after  3 to 5 years. Interest rates for commercial mortgages will generally be higher than for residential, due to the greater risks for the lenders.

When deciding on your repayment schedule you should always remember the longer you take to payback the principal, then the higher your total interest payment will be. In general there are four principle ways to structure the schedule and these are as follows :

Equal payments - This is the most common schedule in which you pay the same amount monthly or quarterly. Part of each payment covers the interest and the remainder the capital.

Equal payment with final balloon payment - As with the above you make equal payments, but these are reduced during the term of the loan, as the last payment is a balloon payment. The balloon is generally 20% to 30% of the original loan and is required in one payment at the end of the term. The advantages are obvious with lower repayments,  but be careful as the balloon payment will be required at the end.

Interest only and final balloon payment - Be careful - here you are paying only the interest, with the final balloon being the original capital borrowed. Over the long term you will pay more interest because you are not paying any of the capital.

Endowment mortgage - This type of mortgage is similar to an interest-only mortgage but the repayment of the capital comes from the proceeds of an endowment. Several types of endowments are eligible for this type of mortgage, they include: life assurance policy, personal or executive pension plan policy, or a personal equity plan. The additional security provided by the endowment usually results in a lower interest rate.

Now which of the above will provide the best mortgage deals for you, will depend on you, your business, and whether the company has been trading for some time or is a new start. If the latter then the lender will almost certainly require personal guarantees, so don't be surprised. Remember the lender will have to be comfortable that the business has the income and profitability to repay the loan - banks don't like owning commercial property, they like to lend money.

Now let's look at mortgages for boats - well when you've made your money in business, you'll want to enjoy yourself, so why not buy a boat or yacht which you can finance with a marine mortgage.  Who offers the best marine mortgage deals? - let's see!!

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