A commercial mortgage is a loan made using real estate collateral to secure payment. It is a mortgage that a company or individual can use to purchase a property either for their own use or lease to a third party.
The following are some basics you should know before entering into the commercial loan process.
1) Down Payment requirements – Commercial mortgages generally require 25% or higher for down payment, either for purchase or refinance, with up to 20 years amortization. The higher down payment serves as a buffer from potential losses in the event of loan default.
2) Application fee – Typically there is a minimum 1% lender fee charged to the borrower. The lender charges this to process the documents in which the borrower details the financial situation for the loan.
3) Given the complexity of commercial mortgages, higher legal and appraisal costs will be incurred. Depending on the project, appraisal cost can be in the neighbourhood of $1500 and up.
4) The terms of a commercial mortgage depend largely on the overall strength of the deal. This includes positive personal credit rating, credit worthiness of the business, business’ current stability and profitability.
5) Interest Rates for commercial mortgages are usually higher than residential mortgages. Interest rates will also be determined by the overall strength of the deal. The stronger the deal, the better the interest rate.
If you have any questions on how one of these items may affect you, please call us. It is important to get it right!