What is a commercial mortgage? Learn everything in this article!
The commercial mortgage market is smaller than the residential mortgage market, although the overall value of the commercial mortgage market is disproportionately high. Commercial mortgages, different from residential mortgages, extend finance in these different ways:
- Developing owner-occupied businesses
- Adding to buy-to-let portfolios
- Buying premises for businesses
- Securing ventures for land development
A commercial mortgage is also structured for borrowers as well as lenders. Compared to renting, the borrower hopes to benefit through reduced repayments. The lender, on the other hand, wants to see security in their loan.
Commercial property mortgages are typically long-term loans, usually as high as 25 years, and provide the funds to buy a business premises. Mortgage lenders often lend as much as 70% of the value of the property, which leaves the business to pay regular mortgage payments and use working capital, if there is any, to fund its growth.
Since commercial mortgages usually only offer up to 70% of the property’s total value, lenders rely on businesses to come up with the remainder before the purchase is complete—and it is usually a significant amount of money.
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