Commercial mortgages – typical terms and conditions «

Commercial mortgages – typical terms and conditions


The repayment methods for commercial mortgages normally work along the same lines as those for domestic mortgages. Choose from either capital and interest or interest only repayment methods, and from a wide range of rate options such as fixed or variable.

The main differences between commercial mortgages and residential mortgages are higher interest rates and shorter repayment terms. Lenders tend to charge higher rates over shorter periods (usually 15 to 20 years) for commercial mortgages as they are considered more of a risk than their domestic counterparts. Every mortgage product is different though, and the terms and conditions that you obtain will be based on the lender’s perception of your business finances and the ability of the business make the repayments.

A sum of cash will also be required as a deposit (and element of security) for many commercial mortgages. Very few mortgage providers will lend you the full property price, although the amount that they will request as down payment will vary from anything between 5 and 25%. Bear in mind, though, that the lower the deposit required, the higher the interest rate is likely to be.

You’ll also need capital set aside to pay for the arrangement costs of a mortgage, as you would with a residential mortgage – administration and legal fees and surveys.

The question of who is responsible for the mortgage repayments falls down to the legal structure of your company. Sole traders bear full responsibility, and as they are normally required to put up some form of personal security such as their own home, they could stand to lose a great deal personally in addition to losing their business premises if they can’t keep up the repayments. Partnerships also tend to bear some kind of personal liability, although both partners tend to be equally liable for the mortgage repayments. With limited companies, it is normally the business itself that is responsible for the repayments. However, depending on the financial circumstances, especially if it is a small business, the lender may demand personal security to guarantee the commercial mortgage.

 

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