Commercial Mortgage

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Mortgages

In many ways, commercial mortgages work much like their residential counterparts: a qualified buyer seeking to purchase a piece of property offers a down payment, and a lender finances the remainder of the purchase price and holds the piece of commercial property as collateral. However, there are some key differences between residential and commercial mortgage loans that borrowers should know about.

First, some commercial mortgage lenders will not extend mortgages to individual buyers unless they're exceptionally qualified. Instead, business mortgages may only be available to registered proprietorships, limited companies and incorporated ventures. If you're an individual borrower seeking commercial mortgages, you may have to incorporate and register a sole proprietorship before lenders will deal with you.

What Do Commercial Mortgages Finance?

A commercial mortgage lender typically lends money to borrowers seeking to complete the purchase of properties like:

  • Manufacturing facilities
  • Retail sites
  • Office buildings
  • Apartment buildings or resort rentals
  • Developmental properties

Commercial mortgage loans may also be available to enable improvements, expansions and extensions in existing facilities.

Commercial Mortgage Rates and Terms

While the fundamental principles behind commercial mortgages are similar to residential mortgages, there are key differences in the way these loans are structured. The major difference is in the way the loan is amortized or paid off over time. Most commercial mortgage brokers offer terms that combine payment schedules with what are called balloon payments.

For example, your payment schedule may be built on a 30-year amortization term with a balloon payment due in 10 years. Such a schedule would require you to make monthly payments based on the 30-year term, but you'll have to pay off the remainder of the mortgage in a single chunk when the balloon payment becomes due in 10 years. Thus, commercial mortgage rates often differ from residential rates because the lender will expect to recover the full amount of the loan in a shorter period of time.

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