The mortgage allows you to obtain cash to buy a property. In return, you mortgage this property, allowing the lending organization to recover its payment in the event of payment default. In the case where the property concerns a company, we are called a commercial mortgage.
How does the commercial mortgage work? What are its characteristics?
In this exclusive guide we tell you everything about the commercial mortgage: rate, calculation, providers, operation, and more.
What is a commercial mortgage?
The commercial mortgage is based on a simple principle: it consists of the mortgagement of a property you have bought or built.
The commercial mortgage is quite similar to the conventional mortgage. But there are a few points that characterize the commercial mortgage:
- Loan generally assumed by companies and not by individuals
- It is the company applying for the mortgage that will be evaluated, not the individual
- More complex because the verification of a company’s solvency is less obvious
- The borrower is usually part of a company that is incorporated and considered a separate entity
- The loan-value ratio is lower than for a conventional mortgage
- The interest rate is mostly higher than for a conventional mortgage
How does the commercial mortgage work?
The operation of a commercial mortgage is similar to other forms of loan. Indeed, you must apply to a lending institution.
Like individuals, companies must also prove their solvency to hope to be able to obtain a commercial mortgage. This therefore requires verification of the company’s credit rating and the lender’s ability to repay. The lenders will therefore check whether the company’s long-term solvency is stable and reliable.
If you have the ability to invest an amount as soon as you acquire the property, lenders will also be more confident to grant you a commercial mortgage for the amount you are missing.
It is advisable to provide evidence that your company is lucrative and that you have projections for its profitability.
Why apply for a commercial mortgage?
There are several reasons why a commercial mortgage can be granted:
- New office or location for a company
- For necessary renovations to the already existing commercial property
- Investments within the company
- Developments on property
More reasons you can find here.
If payments are not honored in due time, the property on which the commercial loan mortgage weighs will be at risk.
Commercial mortgage calculation: how to do it?
The calculation of a commercial mortgage will depend on several factors, so the calculation is completely unique to each new commercial mortgage situation. Here are the factors to take into account when calculating a commercial mortgage:
- Amount of the desired loan
- Amount of the fund
- Duration of the loan
- Interest rate on the commercial mortgage
To find out how much your premiums will be, you can use a commercial mortgage calculator. Do not hesitate to use our commercial mortgage calculator.
What is the rate of a commercial mortgage?
A commercial mortgage has a mostly higher rate than conventional mortgages. The rate of a commercial mortgage is often fixed and will remain so and these terms are mostly shorter (3 to 10 years).
As the rate of the commercial mortgage is higher, the lending institution will be willing to receive the capital and return interest as soon as possible so as not to run the risk that the cost of the loan does not exceed the income from interest.
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Commercial mortgage: is a fund in fund necessary?
The down payment is the amount you will pay directly when you get your loan. It represents an already paid part of your property and thus reduces your commercial mortgage.
In the context of the commercial mortgage, the downing depends at the same time on the financial situation of the borrower and his commercial project. It is often recommended to pay at least 20% of the value of the property.
One fact remains of course absolute and obvious: the larger your down payment, the more you save on the fees related to your commercial mortgage such as the interest rate, or the commercial mortgage insurance premium.