The Essential Aspects of Commercial Mortgages
A commercial mortgage is an understandable concept as well as mortgage type. Knowing a bit more about it can help you avoid the wrong turn while applying for the funds.
A commercial mortgage is the lifeline of the business world. From a small amount borrowed by a sole trader to the humongous funds obtained by a business giant, a commercial mortgage is stable. For sure, you can realize the importance of the money if you have a business.
While taking a critical project, you always have the fact that commercial mortgage will fulfill your need for funds. But there are many deals in the market, and to choose the right one, you need to have an insight into the bigger picture. Understand the depth of commercial mortgage to make better decisions of borrowing for your business.
The quick, crisp definition
A commercial mortgage is a property loan that facilitates funds to purchase a commercial property for business purposes.
The types of purchases commercial mortgage support
Different businesses have different types of needs. The commercial properties to have varied versions, and accordingly, commercial mortgage changes its standards. The affordability rules vary according to the type or purpose of the property purchase.
Here are some of the common purposes that commercial mortgage solves-
- Mortgage for the owner-occupied property – As you can understand by the term itself. The business persons buy the property to use it for their use. It becomes an owner-occupied property.
Owner-occupied purchase is for the two reasons -
1) The owner wants to buy the property he currently occupies
2) The owner wants to buy a new property on a new location
A commercial mortgage provides smooth funding for both purposes.
- Mortgage for commercial buy-to-let - When a business buys a commercial property such as a warehouse, retail shop, beauty salon, etc. to put it on rent, it is called commercial buy-to-let.
The two important facts -
- The affordability parameter for these properties is stricter because it is normally difficult to rent out the commercial properties.
- The minimum deposit requirement can start in such type of commercial mortgage is 15%. It is unlike the mortgages for home buying where the deposit money starts from 5%.
- Residential buy-to-let – Purchase of a residential property to rent its out comes under this category. Such types of property buying is majorly done by -
- The limited buy-to-let companies and
- The professional landlords with a property portfolio
How to qualify for a commercial mortgage?
There are set rules to qualify for funds that may vary from one lender to the other. However, a generalized perspective can be gained to have a basic knowledge of this aspect.
- The minimum deposit is 20% to 30%
- You need to have savings in your business loan account
- Present the business accounts of 3 years
- Bank statements of equal duration should also be presented
- In case of bad credit score, additional collateral may also be required
- Property Features and situation through the survey and valuation reports
A mix of all the above factors decides the mortgage's affordability and the loan amount. An exact number that you qualify for is obtained through the advanced financial tools. The use of commercial mortgage calculator by the UK lenders and broker is quite common. They aim to ensure almost exact calculations for their benefit and clarity to the borrower.
THE CURRENT INTEREST RATES ON COMMERCIAL MORTGAGE ARE FROM MINIMUM 2.25% TO 8.5%
Factors that affect the final decision on the rate of interest -
Of course, everything is interdependent. In any mortgage, many factors work together to attain a solution.
- Experience of the business person
- Monthly and annual business earning
- Industry sector (at different times different areas experience a low phase and the lenders may be reluctant)
- Property conditions such as
- Life of property (old/new)
- Purpose ( Own occupied, residential or commercial buy-to-let)
- Location (on a right spot or in a less promising area)
- Future possibilities of the business
The rate change business mortgage calculator used by the UK lenders can help determine the impact of different interest rates on the whole deal. One smart way to make the lender tailor the rate quote is more investment in the deposit. Bigger is the deposit/down payment lower can be the interest rates.
A commercial mortgage is quite in demand from the end of May month due to the liberal relief in the UK's lockdown conditions. The spoiled business persons are trying hard to get back to their routine. However, the conditions are quite challenging because with the drained repayment capacity, obtaining funds is difficult. However, hiring a broker can solve the problems because the brokers' know-how market is acting nowadays. It is sure that even if everything is normal, a commercial mortgage always demands stronger financial capacity and bigger deposits.