Commercial Mortgage “An overview”

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Purchasing property is a large decision for any business. No doubt it is a good investment and gives stability to the business. Every business owner aspires to secure a business mortgage, for supporting business expansion. This business mortgage comes in the form of commercial mortgage.

We are a mortgage information dissemination company. In our day to day business, we see a lot of misunderstandings related to mortgages. We hope that this article about commercial mortgage along with the associated resources will help you getting a clear picture of it.

Purchasing property is a large decision for any business. No doubt it is a good investment and gives stability to the business. Every business owner aspires to secure a business mortgage, for supporting business expansion. This business mortgage comes in the form of commercial mortgage.

A commercial mortgage is a mortgage secured by real estate, in which real estate is used for business purpose. It is a specialized commercial loan in which the lender has legal claim over the property, until the loan has been fully repaid. It is the most flexible and affordable financing solution.

Commercial mortgage is the best and cost effective way of raising finance to purchase or develop business premises. It can also be altered to suit borrower’s individual business needs. It is a big undertaking for most business owners, as it significantly affects their equity, ( http://www.mortgagefit.com/equity.html) cash flow and assets. For commercial mortgages the maximum length of the loan term is usually 20 years for newer properties, and 15 years for older properties.(http://www.mortgagefit.com/loan-term.html)

Commercial mortgage can be used for a number of applications. Such as:

1. For purchase of new business premises.

2. In raising finance for extending current premises.

3. For Residential and commercial investment.

4. For funding property development.

Advantages of commercial mortgage are as following:

1. Better cash flow- Borrower can have access to capital with minimal up front payments.

2. Supports Flexibility- It gives flexibility to a borrower to design a repayment schedule that suits his/her needs.

3. Simplified cash flow management- Mortgage schedules are preset, making cash management more flexible.

4. Tax advantage- Mortgage payments are tax deductible.

Disadvantages of commercial mortgage are as following:

1. High rate of interest- Borrower is subjected to a very high rate of interest.

2. Element of risk- It has inherent high degree of risk. In the case of borrower’s default on the mortgage, the lender keeps the right of foreclosure (http://www.mortgagefit.com/foreclosure.html) upon the property, and he/she can sell it to get the money back.

There are number of factors to be considered while choosing a commercial mortgage.

They are:

1. Mortgage fees –A borrower is charged an upfront fees or processing fees, by the lender.

2. Prepayment. It is paying off the mortgage prior to its due date.

3. Grace period. (http://www.mortgagefit.com/grace-period.html)

4. Legal and professional fees- These are the closing costs incurred by the borrower before the ownership of the property passes to him/her.

5. Sale and lease back- This is another alternative to mortgage a property.

There are two important aspects in the form of interest rate options which should also be considered before opting for commercial mortgage. These are:

1. Fixed rate of interest- With the fixed rate of interest the outstanding principal remains constant throughout the predetermined period. Here the interest rate is fixed and will not rise if the market rate rises. The disadvantage is that a borrower will not be benefited from any reduction of the market rate.

2. Variable rate of interest- The interest rate applied on the outstanding principal fluctuates as there are fluctuations in the Bank’s of interest base rate. The advantage of an adjustable interest rate is that borrower will save money when the market rate decreases. The disadvantage is that borrowers are not protected from an increase in the market rate and the interest rate you pay will increase with the market rate.

Hence, Commercial mortgages are structured in number of different ways. It depends upon the borrower to pick up the best mortgage deal, which will suit his/her individual requirements.

If you have any other queries related to mortgage, feel free to visit this site.

http://www.mortgagefit.com

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Jessica K