How Are Commercial Mortgage Deals A Boon To Businessmenguruadmin
How Are Commercial Mortgage Deals A Boon To Businessmen
Commercial mortgages refer to the mortgages that are collateralized by commercial properties or objects. The commercial properties can be office buildings, warehouses, factory sheds, shopping complexes etc. The basic condition is that the property which backs the mortgage should not be a residential property. In other words, commercial mortgages are available only to those properties which can produce income directly. Commercial mortgages can help you expand your business or to consolidate your other debts. The interest rates in a commercial mortgage are comparatively higher than the residential mortgage rates. The reason for the higher rates is the increased risk.
How Can You Avail A Commercial Mortgage
The borrower in any commercial mortgage deal necessarily has to be a company or a legal entity, and cannot be an individual. Though residential real estate properties are not covered by commercial mortgages, you can avail a commercial mortgage upon residential real estate properties if they are an investment to you. When it comes to commercial mortgages in Canada, the lenders also want to check the background of the borrower. Hence you are required to produce your historical financial data, business plan and growth prospects to the lenders. The lenders consider your ratios, such as debt service coverage ratio and loan to value ratio, while considering the mortgage transaction.
How a Commercial Mortgage Works
In a commercial mortgage, there is a unique repayment schedule, unlike residential or other mortgages. There are two aspects of repayment in it, they are- a repayment period and an amortization period. The amortization period is often longer than the repayment period. In the repayment period, the borrower has to pay fixed installments of money periodically. These payments are quite small compared to the mortgage loan. At the end of the repayment period, depending on the number of years left for amortization period, a wholesome payment also called as ‘the balloon payment’, has to be made which is the discounted value of the amortized portion of the mortgage. The interest payable for the amortization period depends upon the existing rates, the borrower’s credit rating and the length of the amortization period.