What is a commercial mortgage?

Commercial Mortgages

If you’re looking to expand your business, or the cost of renting commercial premises has become too great, you may be considering investing in property.

In this type of finance, a loan is secured against property which will be used solely for business activities, or which represents a business in its entirety.

Repayment options are not unlike those found in the residential market, but there’s usually a slightly higher rate of interest, as Commercial Mortgages are perceived as higher risk.

It’s prudent to be able to offset this risk, with a deposit as large as possible – at least 20%.

As well as the standard valuation, arrangement and legal fees, there can be additional costs associated with a Commercial Mortgage, so it’s worth seeking clarification on this from the lender.

Benefits of a commercial mortgage

Costs

Commercial mortgage repayments are usually cheaper than paying rent, so buying the premises you are currently renting could result in significant savings.

Confidence

With a Commercial Mortgage, you won’t have any sudden or unexpected rent increases, but obviously monthly repayments could go up if you have a variable rate deal.

You may, however, be able to get a fixed rate mortgage for a period of time.

Equity

If the property increases in value, your business capital will go up and the interest repayments on commercial mortgages are tax deductible.

You could even rent a portion of the premises to another company to help meet those monthly repayments, if your lender agrees to this arrangement.

Good for: Any business looking to fund the acquisition, refinance, or redevelopment of business property.