Commercial mortgages are loans taken for commercial properties or real estate as against residential mortgages wherein the property serves as collateral. In case of Commercial mortgages instead of the individual the loan is given to a company or a business. The business to which the loan is given can be a limited company, incorporated, or even a partnership. While in residential mortgages it is easy to assess the credit history, it is more of a complicated task in commercial mortgages. Hence the rates of such mortgages are quite higher due to the level of risk involved.
Kinds of properties in commercial mortgages
Numerous properties can be categorized as commercial ones. Hence it is very important to know what kind of property you are wanting to finance. Residential properties bought as investment property can also be financed as commercial mortgages. Such properties can be classified into three kinds: a) Pure residential with 1-4 units, b) Pure residential with 5 or more units, and c)Residential Commercial Mixed. If you want to finance your office space or an industrial property or a retail outlet, then too you could consider taking a commercial mortgage.
Time frame to close commercial mortgages
Closing commercial mortgages takes longer than residential mortgages. The time frame of closing such mortgages can be anywhere between 60 days to one year.
Rates of a commercial mortgage
Terms and conditions of commercial mortgages are quite different and the rates may vary hence it is highly advisable to take the help of mortgage brokers. Mortgage brokers for offices, industrial or retail outlets can connect you to a wide network of lenders in the area of your interest. Lenders assess the risk and assess the rates accordingly. The term of a commercial mortgage is shorter than that of residential mortgages. It can be between three to ten years. This is because the lenders would want the principal amount and interest back so that the cost of the loan does not supersede the income he makes from the interest amount.
Insurance for commercial mortgages
As with other criteria, even the insurance for commercial mortgages is a bit more complex than the residential once. For example pure commercial properties are not insured by CMHC. Mixed residential-commercial properties can, however be insured with a minimum down payment of 15 per cent. Security in the form of insurance is a requirement by lenders of commercial properties as those taking a mortgage can declare the business bankrupt, and hence the risk involved for the lender is more here.
Fees charged by mortgage brokers
If you are looking to get a mortgage for a commercial property and wish to use the services of a mortgage broker who helps you connect with their network of lenders offering competitive rates, they will charge a finder’s fee. Niche lenders and private funds such as pension funds, credit unions, mortgage conduits etc offer some of the best commercial mortgages these days.
If you are planning to buy a commercial property in Brampton, please contact LendX Financial.