Question 1

How are commercial mortgages calculated?

Accepted Answer

Commercial mortgages are calculated based on several factors, including the amount of the loan, the interest rate, the term of the loan, and the borrower's creditworthiness. Here are some of the key factors that lenders consider when calculating commercial mortgages:

Loan amount: This is the amount of money that the borrower is seeking to borrow. Lenders will consider the value of the property and the borrower's ability to repay the loan when determining the loan amount.

Interest rate: This is the rate at which the lender will charge interest on the loan. The interest rate is typically based on market conditions, the borrower's creditworthiness, and the loan term.

Loan term: This is the length of time that the borrower has to repay the loan. The loan term can range from a few years to several, depending on the lender and the borrower's needs.

Collateral: Commercial mortgages are secured by collateral, often called the “security property”, it is usually the property being purchased or refinanced. The value of the collateral will affect the amount of the loan that the lender is willing to provide.

Borrower's creditworthiness: Lenders will evaluate the borrower's credit score and credit history to determine the likelihood of repayment. A borrower with a strong credit history is more likely to be approved for a commercial mortgage, however there are some lenders who are flexible on adverse credit. A specialist broker can help you identify which lender is appropriate for your needs and circumstances.

Overall, commercial mortgages are calculated based on a combination of these factors, and the specific terms of the loan will depend on the lender's assessment of the borrower's creditworthiness and the value of the collateral.

Question 2

What are the monthly payments for a commercial mortgage?

Accepted Answer

The monthly payments for a commercial mortgage depend on several factors, including the amount of the loan, the interest rate, and the term of the loan. Other factors that can affect the monthly payments include the type of property and the location of the property.

To calculate the monthly payments for a commercial mortgage, you can use a commercial mortgage calculator like the one on this page.

It is important to note that the calculations are just an example, and the actual monthly payments for a commercial mortgage will vary depending on the specific terms of the loan.

Question 3

Can I get a commercial mortgage with no deposit?

Accepted Answer

No, you will need to put down a deposit on a commercial mortgage.

However, if you do not have cash savings for a deposit, you could raise a deposit from equity you may have in other property you own.

This is quite common in property investment and when investors are building up a portfolio of properties.

Landlords commonly remortgage rental property they own, to use available equity to re-invest in another purchase. However, this tactic is not limited to just rental property, you could use equity in your own home to raise a deposit for a commercial mortgage too.

It is vital to plan this carefully. Borrowing against property always carries the risk that a lender could repossess it, if you are unable to keep up with mortgage payments.

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Question 4

Is it possible to get an interest only commercial mortgage?

Accepted Answer

Yes, it is possible to get an interest-only commercial mortgage.

An interest-only commercial mortgage is a type of loan where the borrower pays only the interest (the charge from the lender for borrowing money from them) on the loan amount for a specified period of time, typically over several years.

The principal amount (the lump sum you borrowed to buy the property) remains outstanding during this period, and the borrower will have to repay it at the end of the term, or refinance the loan.

Commercial property investors who want to keep their monthly payments low, whilst owning a property, often use interest-only mortgages. This allows them to use the extra cash flow for other investments or to make improvements to the property.

However, it's important to note that interest-only mortgages can be risky, as the borrower will eventually have to repay the full principal amount.

If property values decrease, or the borrower is unable to refinance the loan, they may be unable to repay the principal and could be at risk of the property being repossessed by the lender to cover the debt.

As with any financial decision, it's important to carefully consider the risks and benefits before choosing an interest-only commercial mortgage.

Question 5

How can I get a commercial mortgage?

Accepted Answer

Getting a commercial mortgage involves several steps, and the process can vary depending on the lender and the type of property you are looking to finance. Here are some general steps you can follow to get a commercial mortgage:

Determine your financing needs: The first step in getting a commercial mortgage is to determine how much you need to borrow and for what purpose. This will help you choose the right lender and mortgage product for your needs.
Shop around for lenders: Once you know how much you need to borrow, you can start shopping around for lenders. Look for lenders who specialize in commercial mortgages and have experience working with businesses like yours. There are a huge number of lenders in the marketplace, a specialist commercial mortgage broker can help you identify one best suited to your needs and circumstances.
Gather your financial documents: To apply for a commercial mortgage, you will need to provide your lender with a range of financial documents, such as your business plan, financial statements, tax returns, and bank statements. Make sure you have all the necessary documents ready before you apply. A broker can take the majority of this work off your shoulders.
Fill in the application: When you have found a lender you want to work with, you will need to fill out an application for the commercial mortgage. The application will typically ask for information about your business, your finances, and the property you are looking to finance. A broker will do this for you, once you have reviewed the product they are recommending to you and you have asked them to proceed with an application (they will not proceed without your instruction).
Underwriting and approval: After you submit your application, the lender will review your financial information and the details of the property to determine whether to approve your loan. The lender may also require a valuation to be conducted on the property your borrowing is for, to establish it is worth the expected amount on the mortgage application.
Mortgage approval: If your application is approved, the money will be transferred to you so you can complete on the purchase of your property.

Overall, the process of getting a commercial mortgage can be complex and time-consuming, so it's important to work with a reputable lender.

Remember, commercial mortgages are not regulated by the Financial Conduct Authority. Working with a specialist commercial mortgage broker can bring peace of mind that the lender is a known organisation within the industry.

What’s more, a broker can do all of the due diligence work to find you a deal from amongst the huge range of lenders in the market and take on all the administration work on for you, so you do not have to do it.

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