Mortgage Loans - Articles & Advice

Commercial Mortgages

Remember, the property likely is what will be used as collateral. The interest paid on the commercial mortgage usually is tax deductible; just be sure to consult with a professional first.

When you apply for a commercial mortgage, you will typically be offered two different types of loans: fixed rate loans and variable rate loans. These work the same as they do for residential mortgages.

On a fixed rate commercial mortgage, the interest rate that is negotiated and agreed to remains in effect until the loan is fully amortized. If you’re obtaining a commercial mortgage and interest rates are heading higher, a fixed rate likely is a better option. You can always refinance your mortgage should interest rates go lower than your fixed rate.

With a variable rate commercial mortgage, the interest rate will fluctuate during the payback period. Interest rates are determined by the US Federal government. Make sure you understand how variable rates are determined.

Also, find out from the lender how often the rate on a variable rate mortgage will change. It’s fine as long as the interest rate is decreasing; it’s the increases that you need to worry about.

Make sure, too, that should the interest rates increase, you can still afford the monthly payments. With some variable rate loans, the rate is fixed for the first few years, and then converts to a variable rate loan.

When applying for a commercial mortgage, also ask about the Early Redemption Charge (ERC). Remember, lenders make money off the interest on the loan. When the loan is repaid in full sooner than anticipated, the lender loses money.

To avoid losing money, lenders often include an ERC which can amount to a substantial, one-time sum. If you discover an ERC in the fine print, try to negotiate it away. If you’re not successful, take your business elsewhere.

Applying for a commercial mortgage means that you’re about to make a serious investment. Be sure you know exactly what you’re signing before you sign the documents. You have a right to ask questions, renegotiate more favorable terms and do whatever else you feel is necessary. It’s your money and your future. Good luck!

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