Understanding How a Commercial Loan Mortgage is Structured
If you’ve never received a commercial loan or a commercial loan mortgage, it can be easy to become confused by the many unique terms and elements that are specific to 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.
Commercial Property Calculator
Your best bet in determining your commercial mortgage rate is to speak with a lender directly, but if you’d like to get a quick estimate you can visit our commercial mortgage calculator page for information about how to download our calculator. It’s built around the tools we use on a regular basis, so it can be a powerful tool for helping you plan your mortgage needs.
Once you feel ready, you can contact Clopton Capital directly to speak to us about your commercial mortgage financing needs