Commercial Mortgage Loans Explained

Commercial mortgage loans are a type of lending instrument that allows you to buy commercial property much like you would buy a house. Instead of the collateral being a house, the collateral is a commercial building or property. This type of loan program can be very beneficial to business owners. If you need to buy commercial property, a commercial mortgage could be the best way to do so. Here are a few things to consider about commercial mortgages. 

Nonrecourse vs. Recourse Mortgages

One thing that you need to consider when getting a commercial mortgage is whether or not it is a recourse loan. Some commercial mortgages allow you a nonrecourse feature that provides some safety. With a nonrecourse loan, the bank can only take back the property in the event of default. If you still owe more money than the property is worth, you will not have to pay any more. They can not come after any other assets or your personal assets. This makes a nonrecourse commercial mortgage very beneficial in certain situations. 

Various Terms

  • Fixed rate mortgage- One popular type of commercial mortgage is the fixed rate loan. With this product, you get a fixed interest rate throughout the life of the loan. You also get a fixed monthly payment as well. You pay part of the interest and part of the principal in each and every payment. With this program, you do not have to worry about fluctuations in the prime interest rate or any outside factors. You are locked into a rate for the life of the loan.
  • Adjustable rate mortgage- Another common type of commercial mortgage is the adjustable rate mortgage. With an adjustable rate mortgage, you usually get an introductory period that has a low, fixed rate. After that period is up, your interest rate can fluctuate with the market. This means that your payment could go up substantially if the prime interest rate in the market goes up significantly. 
  • Balloon mortgage- Another very common type of commercial mortgage is the balloon loan. With a balloon loan, you only pay the interest amount each month. You do not have to pay anything towards the principal unless you want to. Once you get to the end of the loan period, you have to pay off the entire amount of the loan. This causes many people with these loans to refinance once they get near the end of the loan.

Getting a Loan

There are a number of places that you could get a commercial mortgage loan from. With so many choices, it is important that you shop around to get the best rate. Rates can vary wildly from one lender to the next. The terms of the loan also need to be to your liking before you agree to anything. This is a big financial commitment and you need to make sure that you understand everything about it before you sign on the dotted line. 

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