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Commercially Viable Commercial Mortgages
Commercial mortgages are similar to residential mortgages.
Usually taken by businesses, commercial mortgages are secured
against business property.
Businesses have to make an important decision regarding the
premises where the operations are to be carried. It is a buy or
rent decision. By acquiring a property on rent, one is required
to make a small monthly or quarterly payment. However, even after
paying the rental for innumerable months you are not able to make
inroads into the property ladder.
Buying property, on the other hand, will be intricately
difficult for a newly set up business. This will require a bigger
investment. Obviously, the share of production in the capital
lessens. Commercial mortgages provide a solution to this
paradoxical situation.
Businesses where real estate holds an important place will
benefit most from commercial mortgages. Running hotels and
resorts from rented properties is a cheaper short-term solution.
However if you plan to stay longer, it will be necessary to learn
the drawbacks. The property owner may raise the rental or does
not renew the lease. Moving operations to a new place will be
more inconvenient for these businesses.
Commercial mortgage creates an asset in the form of real
estate. The organization can fall back on the premises for help
in times of recession. Because of the higher risk involved the
rate of interest is usually higher in commercial mortgages, as
compared to the residential mortgages.
Specialist lenders are the best place to look for commercial
mortgages. They understand the specific needs of every particular
industry. Thus, they are able to provide better solutions.
However, the borrowers will have to decide the specialist lenders
out of the many lenders available. Brokers can save borrowers
this effort by finding best lenders and best deals in commercial
mortgages. These brokers charge a commission for their services.
Few brokers charge commission directly from the lenders.
Apart from the interest and principal amount of commercial
mortgage, there are certain fees that the borrower will have to
bear. Some lenders charge about 0.5-1.5% of the mortgage as a
processing fee. The amount varies with lenders. Some lenders do
not even charge the processing fees. The borrower is also charged
for the valuation of the property and preparation of legal
documents. Some lenders also charge early redemption penalties.
It will be necessary to read well between the lines to be aware
of such clauses.
Available with variable and fixed rate options, commercial
mortgages are repaid in a variety of methods. The borrowers can
choose from paying fixed monthly payments of both interest and
principal as in a repayment mortgage, or only the interest as in
interest only mortgage. The manner in which the final payment is
made classifies the methods into endowment mortgage, individual
savings account mortgage, and pension mortgage.
The owner or the proprietor of the organization taking the
commercial mortgage must have a good credit standing. Since the
owner plays an important role in the management of the
organization, the lenders would study the policies framed by the
owner. The organization as a whole must be well run and managed,
and must have a good credit history. Lenders generally demand
audited accounts and bank statement showing the dealings of the
business. A copy of the balance sheet will accompany these
documents. If demanded, future projections for the company will
have to be furnished.
Lenders usually charge a deposit of 20-30% of the amount of
mortgage. Once the organization decides to take up the commercial
mortgage, it must start preparing for the deposit. All the
documents must be updated to make the approval process
easier.
Andrew baker has done his masters in finance from CPIT. He is
engaged in providing free, professional, and independent advice
to the residents of the UK.He works for the personal loan web
site http://www.ukfinanceworld.co.uk
for any type of uk
secured loans and unsecured loan please visit http://www.ukfinanceworld.co.uk
 MORE RESOURCES updated Thu. March / 11 / 2010
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