How to Compare Commercial Mortgages

A commercial mortgage is a loan that is secured by a piece of commercial property as collateral. Usually, business owners or entities take commercial mortgages in order to pay for commercial real estate or business property. As in the residential market, mortgage companies compete with one another to win business by offering lower interest rates, reduced fees and better terms on their commercial loans. Compare commercial mortgages by looking at the details in the term of the loan.

Steps

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    Consider the maximum loan term. Commercial mortgages require a balloon payment, which is a total payoff of the loan, in a specific amount of time. Many borrowers sell the property or refinance the loan at that time.
    • Find a maximum loan term that is longer if you want more time to pay off your commercial mortgage. Most lenders have a term of between 10 and 30 years.
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    Compare the loan to value ratio. Banks usually allow you to borrow up to 75 percent of the value of the commercial property.
    • Choosing a loan that will allow a higher loan-to-value ratio will enable you to borrow more money than a loan with a lower loan-to-value ratio.
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    Look at approval times. You can compare commercial mortgages by asking for an estimate on how long it will take the lender to approve your mortgage.
    • Ask if a committee will need to review your application. This can hold up the approval process.
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    Ask for a Letter of Intent or Commitment Letter before applying for a loan. A letter of intent will disclose rates and terms and is indicative of a serious lender interest.
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    Ask about the lender's appraisal process. To get a commercial mortgage, the lender will want the commercial property to be appraised.
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    Compare fees. Some lenders will charge you an application fee even if they reject you for a commercial mortgage. Be sure to understand all fees before applying.
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    Look at interest rates. As with residential mortgages, you can get a loan with a fixed rate or an adjustable rate.
    • Take a commercial mortgage with a fixed rate if you want to pay the same amount of interest for the length of the loan.
    • Look for an adjustable rate if you do not mind paying a different amount in interest from year to year.
    • Compare the amount of interest you will pay over the entire life of the loan.
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    Compare the amount required for a down payment. A commercial mortgage will require a deposit, usually of at least 15 or 20 percent of the purchase price.
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    Make sure you are comparing non-recourse loans. If you default on your loan, a non-recourse mortgage means that the lender can repossess the property only, and cannot recoup any additional damages from you.
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    Talk to different lenders about their commercial loans. If the terms are similar for all the commercial mortgages you are comparing, work with a lender that has a good reputation, or someone your business has worked with before.
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    Use online tools to compare mortgages. There are websites that take your information and then provide you with a list of commercial mortgages available for you. The system will review your requirements, screen lenders and provide you with about 30 options.
    • Try a site such as C-loans.com, which is free for the borrower.
    • Input your contact information and the requested information about the property.
    • Click submit, and wait for your list that compares commercial mortgages for you.

Tips

  • Ensure that your credit history and business financial statements are in good order. You will be required to submit a lot of corporate documentation with your loan application.

Warnings

  • Beware of predatory lenders, as they exist in the commercial lending field as well. Do not take a loan with excessive fees and charges due. If the interest rate seems too low or too high, ask why. Read all of the paperwork carefully before you sign anything.

Article Info

Categories: Mortgages and Loans