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Commercial Mortgage Overview (Page 1 of 2) |
At present, commercial mortgages are the
ideal way to finance the development of businesses, as they provide
flexible and affordable financing solutions. For businesses
confronted with severe financial difficulties, commercial mortgages
are the best way to avoid bankruptcy and to re-achieve stability in
the market; for growing businesses, commercial mortgages are perfect
for financing business changes and improvements. Commercial
mortgages can be used for a variety of purposes, such as: the
purchase of business premises expansion, residential and commercial
investment, property development, meeting the lenders criteria, etc.
Commercial mortgages basically refer to loans made using real estate
properties as guarantee for repayment. Although commercial mortgages
have similarities with residential mortgages, in the case of
commercial loans the collateral (the security pledged for the
repayment of the loan) is a type of commercial building or a
business real estate, not a type of residential property.
Consequently, commercial mortgage deals are generally closed by
businesses, not individuals, and unlike in the case of residential
mortgages, borrowers have to present with solid credibility and
creditworthiness in order to receive a substantial loan.
The terms and conditions of commercial mortgages greatly vary from a
regional perspective; for instance, commercial mortgage policies in
the United States differ from those closed in the UK in aspects such
as the length of the loan, the length of time allowed until balloon
payment (total payoff of the loan) and so on. However, the most
pronounced variations of commercial mortgages are in areas such as
interest rates, which are established by the local market.
In order to get the most out of a commercial mortgage, it is crucial
to pay the right attention to interest rates, the duration of the
loan and the repayment schedule stipulated in the contract (these
are interrelated variables that can substantially influence the
quality and the efficiency of any underwritten commercial mortgage).
It is important to note that there is no right or wrong way to
negotiate the conditions of a commercial mortgage; however, it is
crucial to opt for the repayment plan that best suits your business
needs and your financial possibilities.
Commercial
mortgage interest rates can be categorized in two distinctive
groups, each having specific advantages and disadvantages:
commercial fixed rates and commercial variable interest rates.
Commercial fixed interest rates are ideal on the premises of
continuously rising interest rates on the market; they are preferred
by business owners who want to stabilize the monthly payment amount.
By choosing a commercial fixed rate, one can also incur an ?early
redemption charge (ERC), which basically acts like this: after the
previously established fixed rate period of repayment has expired,
the borrower benefits from an extended period of repayment, with the
condition to pay a variable rate established by the lender from that
point on. The ERC has been adopted by many categories of commercial
loan providers, thus allowing borrowers to overcome any emerging
financial problems during the period of repayment.
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