If you are planning to start a business, you know that there are a lot of things to consider when finding a suitable property to serve as the office of the business. The most common issue with commercial properties is that it is very expensive. These properties are usually located in a commercial area where there is a heavy traffic of people that comes and go. It can be near a shopping mall, park, office complexes, or basically any place where there are a lot of business.
What some businessmen do is that they get a commercial mortgage. It is basically the same as a residential mortgage where the homeowners need a good credit score to pass, as well as get the term that is best suitable for their income. But there are actually some elements that are different when it comes to commercial mortgages.
Commercial property loan rates could potentially be low especially if the business profits a lot but it is not always the case. The business must be able to generate an income that is greater than the what it owes which is one of the key factors of the loan being approved by the lender with a lower rate for the commercial property loan. There are definitely a huge difference in terms of the money involved in this type of loan that is why some business owners tend to take the time and review their commercial property financing options since there are many financing options that are available for them just as the same with residential financing options.
There are many other differences in commercial loans compared to residential loans. Here are some other information:
Term of payment – Typically, a residential mortgage term can last for around 15 to 25 years. Although this can be negotiated to make it short or longer, it would really depend on the lender if they are able to determine that the value of the home will be more expensive in the future.
Down payment – For residential mortgages, there are times that some lenders may even provide zero down payment to a homeowner. This would really depend if you have a good credit history and if the house market is strong. The minimum down payment for a residential mortgage can range typically from 5% to 15%. As for commercial mortgages, the lenders know the risks of the business not being able to earn more than what it needs to pay that is why the down payment would be around 20% or possibly more.
Penalties – Usually, you can pay off a residential mortgage at any time during the term. This does not matter if the term still has 20 years left or so and you will not be charged for any kind of penalty for paying it off. This is not the same for commercial property loans as there will be penalties if you are to pay off the rest of the loan before the term actually ends. This is because of the risk of the loan which was carefully considered by the lender.