A commercial mortgage is a loan made to a business to purchase commercial property.
Commercial mortgages differ from residential mortgages in several ways, including the following:
- The loan to value ratio may be lower for a commercial mortgage, indicating that the loan covers less than the total value of the property.
- The interest rate for a commercial mortgage is higher than for a residential mortgage.
Commercial mortgages are generally amortized over 20 years or more and paid off in regular installments.
Buying commercial space is often a prudent investment and owning your property can be a major business asset. A commercial mortgage has many advantages for those wishing to start a business. It differs from a residential mortgage in that it is a loan for a business to purchase its commercial property.
Lower interest rates and capital gains
A real estate commercial mortgage can be used to purchase your business premises and repayments can be structured with fixed or variable interest rate payments. However, this type of mortgage loan is not a mortgage to buy an apartment as a residential property. By opting for a commercial mortgage, you benefit from:
- Lower interest rates: Commercial real estate mortgages generally have lower interest rates than other unsecured loans. Choosing to have fixed monthly repayments means you can use them with precision in your business planning and forecasting, allowing you to structure your business finances with a little more certainty.
- A substantial capital gain can be realized for you when purchasing a commercial property. This can be a good way to achieve capital growth over a long period, as long-term property prices are always rising.
The amortization of commercial mortgages is generally over 20 years or more. Reimbursement is made regularly.
A better rental potential and a great development at the business level
If you have extra space with the property you own, you can monetize it by renting out the excess space to generate additional revenue. You will also have a stable and fulfilling financial plan. Mortgage payment plans for commercial properties typically span several years, allowing a business to focus on other important business matters such as sales, monitoring overhead and staff training.
A significant increase in home equity
Your mortgage payments probably won’t cost you more, per month, than your equivalent rent would be. But as you own the building, your equity in the property will continue to grow with each mortgage payment, giving you a stronger financial footing. In addition, you will have certain capital gains, as long-term property prices rise and buying your premises is a form of investment as long as the area you are buying in is promising. Commercial property prices can often rise rapidly in a short period, making your investment wise.
A definite opportunity when closing a mortgage contract
If you find yourself unable to pay your mortgage, or need to move to larger premises, or decide to close your business, you still have plenty of options if your mortgage is commercial. While it’s often difficult to get out of a long-term lease, a mortgage can still be covered if you decide to sell the premises or decide to rent it out and maintain the asset.
