Commercial Mortgage Loan
Mortgage loan is a real estateloan that helps a person to acquire a property for residential or commercial purposes.Commercial mortgage loans are often taken by the business to acquire an office,land, stores, and hotel or for merging a business, commencing a business orexpanding it. It is generally referred to as a secured loan as the lender keepsthe commercial property or building as collateral to make sure that therepayment of the loan is secured.
It is an elementary method to getthe finance for owing a commercial property. The borrower could be a singleperson or partners running a same business. The interest rate is higher thanthe residential loan. The interest rate could be fixed or variable. CommercialMortgage loan are mostly fixed in which the interest rate remain unchangedthroughout the term. On the other hand, in variable interest rate, the interestrate keeps changing with the change in the market trend. The duration of theloan can vary from 5 to 30 years butit is usually 15 to 30 years in commercial mortgage loans to keep the monthlypayment low.
Commercial mortgage loan can beborrowed either from a bank or from a broker. Banks may provide better rate butthey have standardized guidelines that have to be followed and also state the minimumloan amount that a borrower can acquire. If the borrower requests for thelesser amount, the bank may reject his application or may compel the borrowerfor a minimum amount that they offer. On the other hand, the brokers areflexible. They help in structuring the finances and can provide better interestrate. If a person has a good credit history, the interest rate will be low. Theborrower should converse with various brokers to get the best rate in themarket. An easier way is to fill in the application online on few website whichwill give the borrower better idea and in turn, numerous quotes. Most of all,don?t forget to read the fine print on the website.
Once the broker that is providingthe best quote is finalized, the required documents have to be submitted. Thedocuments include the credit report, business profile, the assets and theliabilities that the business may have, tax return for the past two years andthe commercial property papers that has to be kept as collateral. Uponapproval, the broker generally asks the borrower to make 20% down payment whichis the 20% portion of the entire property amount. The broker mostly offers upto 90% LTV (Loan to valuation) and if 20% payment is made by the borrower thenthe loan to value ratio becomes 80%. LTV is an important factor that determinesthe level of risk involved. The higher the LTV, higher is the risk for thelender.
Commercial Mortgage Loan has itsown pros and cons. Let?s see some of them:
PROS:
Tax Benefit:The interest rate that the borrower pays is tax deductible which is a bigbenefit of taking up commercial mortgage loan as at the end of the yearthe borrower will get enough money as tax deductible.
Lower monthlypayments: Commercial mortgage loan makes low monthly payments as theloan term is generally lengthy to make the interest rate low.
Secured loan:It is a secured loan as the lender keeps the commercial property ascollateral.
Ownership:The borrower retains complete ownership of the property as the lender doesnot take the share in the property. The lender just expects the interestearned on the loan.
Scheduledpayment: As the payments are generally fixed with the fixed interestrate, the payments are scheduled with the fixed amount to be paid.
CONS
Down payment: With commercial mortgage loan, the borrower is required to pay a largeamount of down payment which could be 10 to 20 percent of the total loanvalue.Collateral:With commercial mortgage loan, the borrower has to keep the commercial propertyas collateral so that the borrower has the right to seize the property ifthe borrower becomes default.Relocation:Relocation is not possible if the borrower has to sell the property andrelocate.Maintenance:Above all, the property has to be maintained property as one wouldmaintain the rental property. Thus, involving extra cost for maintenance.It is always recommended toperform all the research before approaching the broker. That might help theborrower in negotiating the interest rate with the broker and there is goodchance of getting a fair deal. The influence that the broker gets for the firsttime they are dealt with can be a key for successful deal. The borrower can getthe closing soon with a better interest rate. Commercial Mortgage loan is thebest for commercial property as it is valuable for business prospects, growth,merging or commencement.
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