Non Standard Mortgages - Commercial
Introduction To Commercial Mortgages
A commercial mortgage is most likely the best way to finance
the purchase of land and/or buildings for your business,
as it probably provides the most flexible and affordable
financing solution. A commercial mortgage is a specialised
commercial loan in which the lender has a legal claim over
the property until the loan has fully been repaid. When
arranging a mortgage, consider its effects on your cash
flow and assets. You may wish to consult your accounting
and tax advisors before finalising a loan to reap the maximum
benefit and avoid complications.
Commercial mortgages may be structured several different
ways but the two most important aspects to consider are
the interest rate (type) and the repayment schedule for
the mortgage.
There are two interest rate options for you to consider:
Fixed Interest Rate: With a fixed rate the interest
rate (i.e. the percentage) applied to the outstanding principal
remains constant through out a predetermined period that
may or may not equal the length of your mortgage. The interest
rate is set at the beginning of your mortgage by examining
the risk involved and the current market rates. The advantage
of a fixed rate loan is that your interest rate is fixed
and will not rise if the market rate rises. The disadvantage
is that you will not benefit from any reduction of the market
rate.
Variable Interest Rate: With a variable interest
rate the interest rate applied on the outstanding principal
fluctuates from in line with changes to the Bank of England
Base Rate or LIBOR and, as a result, so will the amount
of your payments. The interest rate for each period will
be the current market rate plus a predetermined premium
that usually remains constant throughout the life of your
mortgage. Generally, you can initially get a lower interest
rate on variable interest rate than on a fixed rate mortgage.
The advantage of an adjustable interest rate mortgage is
that you save money when the market rate decreases. The
disadvantage is that you are not protected from an increase
in the market rate and the interest rate you pay will increase
with the market rate.
