A Quick Guide to Commercial Mortgages
What is a commercial mortgage?
A commercial mortgage is loan used to buy a commercial property, such as an office building, industrial factory, or retail space. This type of mortgage differs from a traditional residential mortgage, typically being a much larger loan that comes with higher interest rates and costlier deposit.
What are the benefits of a commercial mortgage?
The main advantage of a commercial mortgage is the amount you can borrow. As the loan is designed to pay for a commercial property or purchase an entire business, the value of the loan is significantly higher than other lines of credit, such as a residential mortgage or business loan.
As a result, commercial mortgages allow businesses to grow and expand their operations, whether it’s investing in new property or taking over a smaller business.
Understanding commercial mortgage rates and borrowing amounts
A commercial mortgage usually comes with a minimum borrowing amount, typically around £50,000, as there are high administrative costs associated with loans of this amount.
Furthermore, lenders require borrowers to provide a percentage of the loan in a deposit, which varies from around 20% to 40% depending on the lender. So, any business looking for a commercial mortgage must have cash reserves to pay the deposit.
Also, commercial mortgage interest rates are either fixed or variable, meaning there are various options available for loan terms and interest rates. The length of the loan can vary significantly too, with mortgages available for just a few years and other that last for decades.