Although most people would relate a mortgage to buying a home, they can also be used to buy a property that will be used by a company as a workplace. This can be for either business or commercial use, so it doesn’t matter if it’s for a shop, salon or office. These types of mortgage are known as commercial mortgages, and they have a few differences that set them apart from a regular homebuyer mortgage.
Other times when a commercial mortgage is more beneficial is when a business and property come combined – for example, a residential pub where the landlord resides over the pub itself would be better suited by a commercial mortgage.
Commercial mortgages do share some common ground with the more traditional home mortgages. The main one is that the loan still needs to be paid off within an agreed time (25 years being common, just like a homebuyer mortgage). Credit checks may have to be carried out as well. However, this is where the majority of the similarities stop, and the differences in a commercial mortgage become more apparent.
For instance, one immediate difference is that an arrangement fee will be charged. This is normally about 2% of the overall mortgage cost. On top of the arrangement fee, you’ll also have to provide a guarantee on a commercial mortgage. This is to ensure that such a large loan can be covered, since commercial mortgages are often for far more expensive properties than standard house mortgages.
Guarantees will normally be either another business asset, such as another pub or office block, or even the new property itself. This is another way that it shares similarities with a traditional mortgage, in that you could lose the property if the mortgage payments aren’t met.
One of the plus points of taking out a commercial mortgage is that you will generally benefit from a lower interest rate. The reason for this is that lenders believe that a successful business will be almost guaranteed to be able to afford the monthly payments; therefore, there’s less of a risk factor involved. Some of the other features available on a commercial mortgage include:
* Advance of up to 85% Loan to Value option
* Self certified earnings
* Bad credit is often accepted, even if you have numerous CCJ’s, previous
mortgage arrears and defaults against your name
* No maximum age limit on the borrower
* 30 year mortgage available
When you compare these features to the ones found on a standard homebuyer’s mortgage, you can see why it’s a far better idea to take out a commercial mortgage if you have a business, rather than a more traditional type. If you’re still unsure on how to go about applying for a commercial mortgage, or any of the features of one, there are a host of places both online and offline where you can get all the information you need. Once you have all that to hand, you’ll have a good idea as to whether you need to apply for a standard or commercial mortgage.
