A Beginners Guide To Commercial Mortgages

As with a mortgage for your home a commercial mortgage uses the property or land as security or collateral for a loan. The security for the lender is that the property or land can be sold and the loan repaid if you are unable to make the commercial mortgage payments in the normal way. So the standard warning you see on mortgage sites and documentation that your home may be at risk if you do not keep up repayments applies to your commercial property.

The lender will show that they own part of the property by applying a 'charge' against the property. This means that if the property is sold, they will be able to collect the funds to repay the remaining balance on your commercial mortgage.

In general commercial mortgage will have two constituent parts these being the actual amount borrowed plus the costs associated with borrowing, normally the interest on this amount. As with residential mortgages there are a variety of commercial mortgages on offer including straight repayment and interest only. With interest only you will be paying off only the interest with a lump sum required at the end of the mortgage term to pay of the original capital amount borrowed. Whilst a repayment mortgage will be paying of both the interest and the capital off over the period of the mortgage.

Commercial mortgage funds are usually not taxable, although it is still advisable to use the services of an accountant to ensure that all of the correct taxes are paid (by way of completing the tax returns correctly at the end of the year) to avoid being fined or accused of tax evasion.

Another thing to consider is that if you are the landlord or the tenant of a commercial property, you have a responsibility to ensure that local residents are not disturbed by annoyances related to your business or the premises that the business is being run from. This applies especially to premises from which alcohol is served as intoxicated customers can cause a lot of bother for locals.

Variable mortgages are obviously affected by the Bank of England base rate which currently stands at less than 1%. We are seeing commercial mortgages being tentatively offered at anywhere from three and a half percent plus. This will greatly vary depending upon individual circumstances. In today's market these circumstances have a significant effect on the mortgage you are likely to be offered. Be prepared for lots of probing questions as lenders ensure the loan you require is affordable.

As with many financial products there are always other cost to consider from administration fees and other costs that may be hidden away in the small print. Though nowadays everything has to above board and people need to be fully aware as to what they are signing up for. Just ensure you fully understand all the costs involved including admin fees, broker charges and things like early repayment penalties. I suppose this is about good research and good, qualified advice.

Once you have your commercial property and your mortgage is in place make sure you have all the necessary insurance in place to protect your asset. As with your own home having the right insurance in place is often a requirement of the mortgage itself but can also help you sleep at night with the knowledge that if anything should go wrong you are fully protected.

Commercial property is inevitability a workplace, so liability insurance has to be added onto the stack of insurance. The last thing you need to happen is to bankrupt the company over a trivial lawsuit because someone can't read a wet floor sign.

When you are looking for a new commercial mortgage deal, go and consult a broker first. Many brokers or advisers have access to mortgage rates and 'broker' deals that the high street lenders don't deal with. Some of these deals can offer far more competitive rates and are worth pursuing, as they can make all the difference between profit and loss.

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