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Interest rates on commercial mortgages are higher
A commercial mortgage could help you to invest in a current business, start a new venture or allow you expand your current business. You could also use the equity in your business to apply for a commercial mortgage for the consolidation of high-interest business debts.
The value of commercial loans is typically much higher than those in the residential sector, as is the interest rate. The higher interest rate reflects the higher risk to the lender of commercial as opposed to residential properties in Barrie. A commercial mortgage is similar to a residential mortgage but it is one taken against a commercial property, and this property will be used as collateral on the loan.
A mortgage on a residential property purchased as an investment can also be classified as a commercial mortgage.
It is important to note that interest rates on commercial mortgages are considerably higher than interest on residential mortgages reflecting the higher risk to the lender when dealing with businesses.
A long and complicated process
The process of negotiating a commercial mortgage is a long and complicated one and you will definitively need the assistance of a mortgage professional to assist you with the process. Whereas a residential mortgage takes two or three weeks to conclude commercial mortgage approval can take up to a year.
A mortgage broker can shorten the process for you and will ensure that you have all the required documentation. Mortgage providers in the commercial sector tend to specialize in various activities and your broker with his many connections in the industry can partner you with a mortgage provider with the expertise that you require.
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Qualifying for a commercial mortgage in Barrie
Before you qualify for a mortgage the mortgage provider will check your debt to service ratio. He will want to satisfy himself that the business is capable of servicing the debt. He will also require a substantial down payment. You and your business will both need decent credit ratings.
Depending on the type of commercial property you are looking to purchase and your risk profile you will be required to make a down payment of between forty-five and fifteen per cent.
You will have to prove that you have a viable business that is profitable and that you have no liquidity problems. The lender will require an income statement, balance sheet, business plan and forecast growth rates. He will also require you to have some experience in the commercial field.
Interest rates are difficult to compare
The interest rate that you will pay will depend on market conditions, perceived risk and the size of the down payment that you make. Paying less than 25% down payment increases the risk to the lender and you will pay higher rates.
As with residential mortgages, the term of the loan will depend on what you have negotiated and you can obtain either fixed or variable rate mortgages. Fixed rates make it easier for the businessman to budget as the repayments and interest rates remain unchanged for the term of the mortgage, whereas variable rates are generally lower, and connected to the prime interest rates meaning that they can fluctuate over the term of the mortgage.
When it comes to commercial mortgages, can be difficult to shop around because of the different criteria in the commercial mortgage industry. A commercial mortgage broker can save you thousands of dollars. Certified Mortgage Brokers in Barrie are experts in the field. Look us up.
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