The Top Five Factors Everyone Should Know About Commercial Mortgages
Commercial mortgages and business loans are the ideal way for you or your company to buy business property. Whether you are a company looking to buy your own offices, factory or warehouse or you are an individual looking for a commercial property investment, specialist commercial mortgages and business loans can provide you with the capital needed to fund your purchase.
Commercial mortgages and residential mortgages work quite differently. Whilst both types of lending rely on a property being used as security for a loan, there are some major differences between the two types of borrowing. So, our guide examines five things that you should know about commercial mortgages.
1. You will generally need a higher deposit than for a residential purchase: When you are buying a property to live in, a lender will typically need a deposit of at least 10 15 per cent of the purchase price. In fact, to secure the most competitive mortgage deals low fixed rates, for example you may well have to put down a deposit of around 25 per cent of the value.
When buying a commercial property, however, you will have to commit a much higher proportion of your own cash. It is not unusual for a commercial mortgage lender to require you to put down a deposit of between 30 and 40 per cent.
2. You may need to provide a personal guarantee: Many buyers look to purchase the commercial property in a company name. However, what happens if the company cannot make the repayments? To avoid this situation, many commercial mortgage lenders will insist that the directors of the company provide a 'personal guarantee' a commitment that they will personally keep up the mortgage repayments should the company fail to pay.
3. Mortgage payments are generally tax deductible: Every year, you or your business will have to prepare company accounts or a Self Assessment tax return. One of the advantages of a commercial mortgage is that your interest payments are an allowable tax deduction. HM Revenue and Customs will generally allow you to claim the interest payments on your commercial mortgage as a permitted business expense.
4. Commercial mortgages may be cheaper than your existing business borrowing: Commercial mortgages are secured on property, meaning the lender has the security of the property should you default on your loan. This therefore means that commercial mortgages are cheaper than other forms of borrowing such as unsecured bank loans, overdrafts or company credit cards.
Consolidating other business borrowing that may be charging much higher interest rates can therefore save you money. Lots of firms use a commercial mortgage to repay other, more expensive, funding.
5. Commercial mortgages may be structured differently to residential mortgages: Many residential lenders will allow you to take out your mortgage on an interest only basis. However, a commercial mortgage will generally have to be repaid on a capital and interest (repayment) basis. A lender may allow you to make interest only payments for a year or two but the loan will generally have to be converted to a repayment basis after this time.
Another main difference is that commercial mortgages can be set up on a 'quarterly payment' basis. Instead of making a payment each month as you would on a residential mortgage, the lender may instead require that you make payments once every three months.
About the Author:
Howard O'Gollegos writes for Just Commercial Mortgages the UK's No1 site for the latest commercial mortgage rates and commercial property finance news.
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