A commercial mortgage is a loan secured by a piece of commercial real estate as collateral. Commercial mortgage is usually applied for by businessmen and investors to make large payments for commercial properties or business real estate. Just like residential lending market, the lenders compete with each other in the commercial market as well to secure borrowings primarily by offering lower interest rates. To win business, commercial mortgage lenders also offer reduced fees and better terms on loans. Use the information mentioned below to compare commercial mortgages and determine which lender offers the most affordable loan.
Consider the maximum loan term
Commercial mortgages require an unusually large payment at the end of term. This ‘balloon payment’ is usually the final repayment to the lender. Usually the borrowers sell the collateral to make the balloon payment and it is necessary to consider the maximum loan terms offered by various lenders and go for the one that is the longest of them all.
Compare the loan to value ratio
Commercial lenders allow the borrowers to apply for a loan between 75 to 85 percent of the collateral. Compare the loan to value ratios and accept the one that is highest of them all. A higher loan to value ratio will allow you to borrow more money against a particular property than the lower loan to value ratio.
Look at approval times
Ask the lenders for an estimate on how long it will take them to approve your loan, and apply for a mortgage where there is minimum approval time.
Ask about the lender’s appraisal process.
It is also good to compare the appraisal processes of different lenders.
Look at interest rates.
Just like a residential mortgage, you can get a commercial loan with both fixed and adjustable interest rates. If you want to pay the same amount of interest for the length of the loan then go for a mortgage with a fixed rate. If you don’t have any issues in paying different amounts in interest every year, then an adjustable interest rate is probably better for you. However, don’t forget to compare the amount of interest that you will pay for the entire length of the loan against fixed and adjustable rate, and go for the one that accounts for a lesser amount.
Make sure you understand all the expenses that you will bear when applying for a mortgage. These expenses are other than the mortgage loan that you are applying for, and are charged as service fees. Some lenders charge the applicants even if their application for a commercial mortgage is rejected.