A commercial mortgage is the saviour of profit earners. It is the support that one needs to craft a prosperous future. Yes, the business persons that help a nation construct its economy and build a better tomorrow. Isn’t it necessary to support them with a financial back-up for their commercial needs? If you too are self-employed, the information here is vital for you also.
There are so many things to know about commercial mortgages. People need money to enhance their business profits. Due to the lack of understanding of the commercial mortgage, they fail to take the right decision. Here is an all-in-one guide to this prevalent and one of the most sought-after property loans.
The definition
Before you go further, have a quick introduction.
Commercial mortgage – A loan that is availed against the property that you buy but not for the residential purpose is known as a commercial mortgage. They are also called as business mortgages.
What is required to apply for a commercial mortgage?
The following are the preconditions to apply for the funds –
- Audited business accounts of the last three years
- Business bank statement of last 6 months
- A Detailed statement of assets and liabilities
The application procedure
The process is precise and rational, and you need to complete all the steps carefully.
- Complete the online application form.
- You will need to provide varied details about your business like business structure, annual income etc.
- The property valuation takes place
- The solicitor of the lender will take care of all the legalities
- Once approved, you get an offer by the lender
- Once you accept the offer, the fund disbursement happens, and you can finally buy the property
What is the deposit size for commercial/business mortgage?
The deposit amount for a commercial mortgage is always more significant as compared to a general residential mortgage. It is 25% to 40% depending on the risk level that the lender assumes through its calculation on your financial conditions.
The LTV statistics
Well, this too is drastically different from the mortgage for home buying. The two conditions apply here are –
- If the owner will occupy the property, the Loan-to-value is 70% to 80%
- If the property is for commercial investment, it is rare to find the Loan-to-value higher than 75%
The fee types – Most of the self-employed people get confused here
Oh yes, this is the evident reality of any mortgage, and you need to know what types of fees are applicable.
- Legal fees – You need to pay a legal fee for yourself as well as for your lender, and the amount starts from £500 for each party. It is the approximate figure that may change from one lender to the other.
- Valuation fee – This fee is applicable to get the inspection and valuation of the property that you want to purchase. It also starts from £500 and may vary from one mortgage company to the other. It majorly depends on the final price that the officer on valuation tells to the lender. You need to pay the fee to the lender only.
- Arrangement fee – This fee is usually taken after the loan gets approved. However, some lenders may ask you to pay it in advance to cover the cost of their work. For the loans up to £1 million, the arrangement fee is usually up to 1% – 2%.
How can a business person get the best rate on a commercial mortgage?
Well, this is something that needs a bit of struggle and time. You can use the varied but popular methods that usually people try.
- People in your industry can always help to magnify the possibilities of a mortgage. For sure, there are business persons who have taken a commercial mortgage and can guide you well.
- Contact to the lenders but do not apply instantly – You can contact the lenders to know their mortgage rates, features etc. they offer. Do not send applications to the lenders until you finalise any one of them. The multiple applications cause search footprints.
- Explore the broking sites as the mortgage brokers have sundry options. They can even find you a deal if you have a poor credit situation. It is easier to get the best rates on a mortgage with bad credit broker. They can bring the best possible deals and can also bargain on the interest rates as well as repayment plans, tenure and loan amount limit.
The features ARE…
Yes, you should certainly know the features of the commercial mortgage as they tell about the exact nature they own.
- The interest rates are usually high in the commercial mortgage
- The fixed-rate method is usually not available
- The interest of a commercial mortgage is tax-deductible, which a great benefit is for a businessperson.
The conclusive part
Perhaps the information above is sufficient for you to get a commercial mortgage or take a decision on it. Information is always the best tool to make wise and rational financial decisions. Commercial mortgages are more expensive than the general ones for home buying.
You need to be very cautious about the monthly instalments. Besides, you should also have the capacity of your business to pay it off. Stay informed and take a calculative decision. Borrow funds for your goals and achieve the success you look forward to your business. All the best!!