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What Are Commercial Mortgages?
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The proceeds from a commercial mortgage are typically used to acquire, refinance, or redevelop the commercial property. It is mainly intended for those in business; commercial mortgages are essentially business loans made using the commercial property as collateral. They can help business people make substantial capital gains from their properties over an extended period of time, but are often subject to high-interest rates.
How do commercial mortgages work?
Commercial mortgages are structured to meet the needs of the borrower and the lender. It is subject to extensive underwriting and due diligence before closing. The lender's underwriting process may include a financial review of the property and the property owner, as well as commissioning and review of various third-party reports, such as an appraisal.
It is ideal for those looking to buy new business premises, or extend or develop a property. Also, they enable borrowers to maintain the cash flow for their business by providing the necessary capital to invest in funding growth and expansion. They are often a preferred option over other investment methods, as a commercial property mortgage allows the business owner to keep full ownership of their premises; other options may entail giving up part of the assets of their business.
What are the additional costs of commercial mortgages?
There are additional costs associated with taking out a commercial mortgage, and it should be taken into account before agreeing to the terms of a commercial mortgage.
Arrangement fees (usually between 0.5 per cent and 1.5 per cent of the loan value)
Valuation fees (the cost of the lender surveying the property to establish its worth)
Legal fees (including legal documents, insurance and your surveys)
Redemption penalties (a tax payable to the lender if you pay off your mortgage before the agreed term)
As with any mortgage, you should always seek the appropriate professional and legal advice before taking out a commercial mortgage.
How long are commercial mortgages for?
Commercial mortgages are typically from 3 to 25 years. Shorter term finance is also available, and this may be called a bridging loan or property development loan, which you may have from a few weeks up to 12 months.
Almas is the owner of EMB. He loves to update people regarding the mortgage.
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