Commercial mortgage loans are used when purchasing structures such as office buildings, apartment complexes, health care facilities and retail outlets. Whether it’s a hi-rise tower or a family-owned restaurant, buyers typically need additional funding to complete
transaction. Commercial mortgages are what they pursue.Similar in many ways to residential loans, commercial mortgages require far more paperwork. Both types of loan require that properties being purchased undergo a thorough appraisal. Both require collateral to secure loan and protect lender against default.
Like residential mortgages, commercial mortgages can be refinanced to take advantage of more favorable terms, or they can be re-mortgaged to establish a line of credit to use for running business. And like residential mortgages, lender will hold deed to property until such time that loan is repaid in full.
During that time, lender makes money off interest on loan. If borrower fails to make payments on commercial loan, lender has right to initiate foreclosure proceedings and take property. Remember, property likely is what will be used as collateral. The interest paid on commercial mortgage usually is tax deductible; just be sure to consult with a professional first.
When you apply for a commercial mortgage, you will typically be offered two different types of loans: fixed rate loans and variable rate loans. These work same as they do for residential mortgages.
On a fixed rate commercial mortgage, interest rate that is negotiated and agreed to remains in effect until loan is fully amortized. If you’re obtaining a commercial mortgage and interest rates are heading higher, a fixed rate likely is a better option. You can always refinance your mortgage should interest rates go lower than your fixed rate.
