Understanding How a Commercial Mortgage is Structured
If you’ve never received a commercial loan or a commercial mortgage, it can be easy to become confused by the many unique terms and elements that are specific to understanding commercial loans as opposed to residential and private loans. Fortunately, Clopton Capital is here to provide you with a quick primer to help you understand how your commercial loan mortgage will be structured, which factors will influence it, and how you can complete a rough calculation of how your loan might be structured.
In many ways, commercial loan mortgages and loans are structured much like residential home loans. They both feature set terms negotiated between the lender and you, though commercial loans bring a few other factors in play as well. That being said, there are some key differences to understand before seeking commercial mortgage financing.
One distinction lies in the commercial loan mortgage term— they can range from five years to 20 years, as opposed to residential loans for which a 30-year term is common. Why? Because the goals of businesses and individuals are to make a profit, so lenders often wish to capitalize on those goals in a shorter time frame than in residential loans, which can often take a long time to mature.
More Commercial Mortgage Financing Tips and Info
It’s also important to note that the amortization period of a commercial mortgage loan often extends longer than the life of the loan. The amortization rate represents the amount of time it would require to pay off the loan at a certain mortgage rate. That means a commercial loan might be structured to have a term of seven years, but with an amortization rate of thirty years.
So what does that mean for you? Your monthly payments would be based on paying the loan off after thirty years even though the term of the loan is only seven years long. How can your mortgage be structured to pay off the loan over a longer period of time than your actual loan term? This results in a final “balloon payment” at the end of the term that covers the remainder of the loan.
This balloon payment must then be either paid off in its entirety at the end of the loan term or refinanced before the loan repayment is due.
How much will I need for a commercial down payment?
If you’re currently pursuing a commercial real estate loan, you’re likely wondering what you’ll need to provide in terms of an initial commercial down payment.
Like residential home loans and auto loans, commercial loans generally require the buyer to provide a down payment to cover part of the cost of sale before the loan is granted. This down payment on a commercial loan is designed to show the lender that you’re willing to take some of the risk upon yourself, and that you’re serious enough about achieving enough success to gain return on your investment that the lender can expect to receive their loan amount with interest down the road.
Generally, commercial real estate down payment terms require deposits that can range anywhere from 20% to 40% or more of the total property value. Conventional business loans often require a 25% down payment, while private commercial lenders will occasionally offer down payment requirements as low as 10 to 15%. (It should be noted that loans such as these are rare.)
Keep in mind that the down payment requirements can also vary depending on the credit situation between you and your business, the terms of the loan, and the lender itself, as well as other factors like current market trends and the type of property. In general, commercial property down payment requirements can differ greatly from residential loan requirements when it comes to down payments.
You’re in control of your commercial down payment
Remember that the minimum down payment for a commercial property doesn’t preclude you from submitting a larger down-payment amount in order to lower the amount of interest you’ll accrue over the life of the loan. You’ll need to make determinations based on your own unique situation and decide the best course of action for your business when assessing your commercial real estate down payment.
Your best bet is to consult a skilled and experienced commercial down payment expert from a trusted commercial lending company. A down payment is a massive commitment, so you’ll want to ensure that you’ve received all the information you need to make an informed decision moving forward. Don’t leave anything to chance.
What determines the deposit required for commercial property?
Commercial mortgage financing is built around a LTV (loan to value) percentage, which is how much of the property’s value a lender is willing to loan. That number is determined by a range of factors, bust mostly it’s up to the lender based on their willingness to accept risk. At Clopton Capital, we can offer loan to value maximums up to 80%, which means buyers will need at least a 20% deposit
Have more questions about commercial loan mortgages or commercial mortgage financing? At Clopton Capital, we bring decades of commercial lending experience to our work with businesses and individuals across all industries. We’re enthusiastic about ensuring that you understand ever element of your loan terms and helping you find the best possible arrangement for your unique business and needs. Contact Clopton Capital today to learn more.
Understanding Commercial Property Rates
If you’re pursuing a commercial real estate loan, you’ll want to remain informed on current commercial property rates. You’ll want to know how they’ll affect your mortgage, terms, and other elements of the loan itself. It will also make you more equipped to understand your loan and whether an offer from a lender is in line with current competitive market trends.
It’s also important to understand the best times to seek out a commercial property loan. You want to lock in good rates when the market presents them, rather than finding yourself having missed the boat on a great interest rate. So how does the market look right now?
As of late 2018, average commercial real estate loan rates have been dipping toward an all-time low. That means there’s never been a better period to either buy real estate property or initiate a commercial property refinance. If you’ve been considering diving in and seeking a commercial property loan, now may be the perfect time for you.
However, it’s still important to develop an understanding of how commercial building rates are calculated.
What are commercial real estate interest rates?
First, you should understand that commercial property rates can depend on various factors. These might include your location and the type of loan you’re pursuing. That said, there are general ranges that can be expected at current market conditions. Use these as a general guide to arm yourself with information before speaking to a lender.
Current interest rates on commercial property can range a great deal, with competitive rates ranging from around 4% to as high as 11%. It can be difficult to pinpoint exactly what determines a rate, as rates can depend on a wide range of factors including:
- Credit Score– It’s important to be aware that both your personal credit score and the credit score of your business will be considered. The better your scores, the better chance you have of landing a low rate.
- Loan Type – The type of commercial property rates you can expect will depend largelyon the type of real estate loan you decide on. Clopton Capital can help you secure the right loan for your business.
- Details of the Loan– Loans designed to span longer time periods, for greater loan sizes, generally will result in higher rates. That’s a built-in method your lender uses to protect itself.
- Current Market Conditions – While current ratesare at an all-time low, the market and economy can fluctuate at any time. That makes it vital to seize an opportunity when conditions are right for your business.
Wondering how to identify the best commercial mortgage companies?
As a business owner or individual looking to obtain a commercial loan, conducting research on reputable lenders and sources of information can be difficult. It’s become easier than ever for organizations to appear more legitimate than they are, or to reel in potential clients with empty promises that ultimately disappoint.
The internet is filled with commercial mortgage advice from thousands of different sources. Nowadays, anyone can launch a website or blog page claiming to be an expert, or one of the top commercial mortgage brokers. So how do know what information to trust and what will only lead you in the wrong direction?
If you’ve been searching for top commercial mortgage brokers and wondering how to choose the best among thousands of commercial mortgage companies, how do you know when you’ve come to the right place?
You need to find a source that’s backed by legitimate expertise over years of commercial lending. It’s not just about rates, though getting the best terms possible for your loan is certainly vital. Interest rates must be competitive with current market rates, and upfront costs should be as low as possible.
What should you expect from commercial mortgage companies?
It’s important to consider the level of expertise the lender has in your specific needs, as well as the types of financing they offer. Sometimes do-it-all lenders can be tempting, but you’ll often receive more focused and expert attention from a lender that works exclusively in commercial mortgage loans. They’ll have a more refined understanding of how to get you where you need to go, and how to keep you informed and educated along the way.
A commercial mortgage lender should be able to guide you through the entirety of the lending process, beginning with your initial interest and qualification for the loan all the way to closing and beyond. They should also provide clear knowledge and information about their process and how your loan terms will be laid out.
The best place for commercial mortgage advice
There are plenty of sources on the internet claiming to be experts on offering commercial mortgage advice, but the only trusted providers of direction in commercial lending are commercial lenders themselves.
Don’t waste your time browsing through dozens of conflicting blog posts, pages and articles from pseudo-experts more interested in building their online profiles than providing real, actionable advice. You need the direction of a legitimate commercial mortgage advice institution with a proven track record and client history.
Fortunately, Clopton Capital offers years of experience and an approach centered around understanding your unique needs and goals. If you’re looking for commercial mortgage advice from one of the nation’s most trusted commercial mortgage companies, contact us at Clopton Capital today.