Commercial mortgage loans are loans which are given to business groups or companies keeping a commercial property as collateral. This type of loan is very beneficial to business owners. The various purposes of taking commercial mortgage loans are –

• Purchase a business premises.
• Extension of existing commercial premises.
• Residential and commercial investment.

Before taking a commercial mortgage, always check out that the loan is a non-recourse one. Non-recourse loans provide some safety to the borrowers as, in the event of any default, the lender can only seize the collateral. Even if the collateral is of lesser value than the outstanding debts, the lender cannot make claims to any other assets of the borrower.

Types of Commercial mortgage loans

Commercial mortgage loans can be of various types. The following are the 3 types of commercial mortgage loans available -

• Fixed rate mortgage:

This is one of the most popular types of commercial mortgages. This loan allows you to pay a fixed interest and a fixed monthly payment throughout the loan repayment term. You’ll pay a part of the interest and the principal in each of the payments. With this form of loan, you’ll not have to worry about fluctuations in Prime Rate or any other factors.

• Adjustable rate mortgage:

This is another very popular type of commercial mortgage loans. This form of loan has an introductory period where the interest rate would be low and fixed. After the initial introductory period, the interest rate will fluctuate depending on the prevalent market rates. This means that your monthly payments can increase substantially, if the Prime Rate in the market goes up.

• Balloon mortgage:

The third type of loan in this list is the balloon mortgage. Balloon mortgage is quite similar to the fixed rate mortgages. Here, you need to pay a fixed interest rate and a fixed monthly payment for an initial period of 5 to 7 years. At the end of the specific initial period, you’ll have to pay the entire amount of the loan due in a single payment.

Eligibility criteria for commercial mortgage loans

In order to get a commercial mortgage loan, you must fulfill the eligibility criteria of the lenders. The following are a few eligibility criteria for you –

1. You should have a good credit rating.
2. You should be able to invest a part of your money into the purchase.
3. Your existing business, if you have one, should be stable and profitable.
4. You should be able to generate high profits from your new business after you complete the construction or buy the new premises.
5. You may also have to show your business plans and future financial projections to convince the lenders.

Although, commercial mortgage loans are a great option to start a new business or expand an old one, the interest rates on this type of loan are generally higher than home mortgages. In recent times, it has also been difficult to take commercial mortgage loans since the assessment procedure for the loans’ eligibility has been made stricter. Before taking a commercial mortgage and making a big financial commitment, make sure that you understand everything about the loan.