While offices and factories are important for any business, purchase or construction of these premises will divert the ever-important capital from regular business expenses. If you are thinking of extending the lease period of your property then wait. Rental of leased properties put a much higher cost on the business. Even after years of paying the lease, you continue to be the leaseholder. In this article, the author has tried to show how commercial mortgages offer a middle path.
While the entrepreneur becomes a property owner with the help of commercial mortgages, the sum that he has to expend every month or quarter will be equal or sometimes lesser than what is being offered on lease, thanks to the low commercial mortgage rates.
Those who are conversant with the residential mortgages will not find commercial mortgages very different. The only difference lies in the fact that commercial mortgages are designed for the businesspersons. Nowadays, businesses are readily making use of commercial mortgages to not only purchase property, but also raise finance for other business purposes.
Commercial mortgage rates may generally take two forms. The first is when the market forces are given a free hand, and the commercial mortgage attracts interest at the commercial mortgage rate prevailing in the market at that point of time. Though this method has been used conventionally, the regular ups and downs in the figure is seen as a drawback. The second form of commercial mortgage rate is the result of this drawback. In this method, the commercial mortgage rate is locked to a rate for a particular period or for the entire life of the mortgage. Keeping the commercial mortgage rate locked for a particular period may cost the borrower some extra points or fees for the lock period. The fees will be welcome as long as it insures against rising commercial mortgage rates.
A point that further goes in favour of commercial mortgage is that the interest paid is tax deductible. Moreover, any proceeds received from the commercial mortgages are not included while calculating the taxable income. Nevertheless, before you assure yourselves regarding the fact, it will be safe to confer with a tax consultant, if the purposes to which the proceeds have been used come under the purview of business purposes under commercial mortgages.
Like in any mortgage, the lender has a lien over the property of the entrepreneur that he exchanges for commercial mortgage. This lien is to be exercised only in the event of non-payment of the due amount. In all other cases, the borrowing enterprise gets the property rights back after the last of monthly repayments have been made. Property serving as collateral does not interfere in the enterprise’s right to continue its operations in the property.
Early redemption charges are a thing of the past now. Many lenders used to include this clause in order to prevent borrowers from switching over to other mortgage lenders by refinancing commercial mortgages. The early redemption charge used to be either for the whole term or for a certain number of years. The idea was to compensate the lender for the commercial mortgage rate that he lost through premature settlement. Even today, some lenders would have this clause included in fine print. It will be prudent to carefully read for this and several other clauses that can trigger problems in the future. The early redemption charge can be brought down through proper negotiation.
Lenders will recommend a different method of using commercial mortgages, when the purpose is different from buying business property. Refinancing an existing mortgage and including the sum needed by the enterprise in the new commercial mortgage is one of the methods. In an equally popular method, the lender would open a line of credit in favour of the businessperson. The amount that is credited is the difference between the present market value of the business property and the unpaid amount over the commercial mortgage.
As compared to the process of searching and deciding several issues involved in a commercial mortgage, the application process is simple. It will not require more than a minute to fill in the details of the mortgage on the application form given in the loan providers website, that almost every bank and financial institution has nowadays. Online processing of commercial mortgages has added to the speed with which these are approved.
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