What is the usual length of a mortgage?
Mortgages are typically available for any time period between
5 to 25 years. For commercial mortgages the maximum length
of the mortgage is usually 20 years for newer properties
and 15 years for older properties.
How much cash do I need to provide for a down payment?
Typically lenders often view mortgages with larger down
payments as more secure. Most lenders typically like to
receive 20% to 30% of the purchase price as a down payment.
Depending on your company's financial history, as little
as 5% of the purchase price may be required for a down payment.
(You will most likely have to pay a higher interest rate
to compensate for the smaller down payment). You should
remember, that the larger your down payment is, the less
you have to borrow.
How should the mortgage be structured?
If possible, you should form a separate business entity
to lease the building to your operating company. This separate
entity should then arrange for a non-recourse mortgage for
the purchase of the property. This should protect your operating
business if you default on the mortgage. You may wish to
consult your accountant or tax advisor.
How can I improve my chances of getting a mortgage?
Be prepared to demonstrate why you have a solid chance of
repaying the mortgage. The lien on your property adds security
but the lender will still base their decision on your ability
to repay the mortgage. It will be extremely beneficial to
be able to show the lender a history of your earnings and
a projection of future earnings. Also expect the lender
to arrange for a property appraiser to estimate the market
value of the property; this will help the lender feel that
the property is sufficient collateral for the mortgage.
Who is responsible for the repayment of the mortgage?
The legal structure of your company will determine who is
responsible for the repayment of the mortgage and who will
be liable if it is not repaid. If you are a sole trader,
you bear all the responsibility and potential liability.
If your have formed a partnership, all of the partners involved
are jointly and individually responsible. If you a legal
company, the Directors may be liable if the mortgage is
not repaid.
