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With a variable rate commercial mortgage,
interest rate will fluctuate during payback period. Interest rates are determined by US Federal government. Make sure you understand how variable rates are determined. Also, find out from lender how often rate on a variable rate mortgage will change. It’s fine as long as interest rate is decreasing; it’s increases that you need to worry about. Make sure, too, that should interest rates increase, you can still afford monthly payments. With some variable rate loans, rate is fixed for first few years, and then converts to a variable rate loan.
When applying for a commercial mortgage, also ask about Early Redemption Charge (ERC). Remember, lenders make money off interest on loan. When loan is repaid in full sooner than anticipated, 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 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 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!
Commercial Lifeline are Commercial Mortgage and Bridging Finance specialists.
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