Long Term Commercial Mortgage

A long term commercial mortgage is quite similar to any regular residential mortgage. Primarily the only difference between a residential mortgage and a commercial mortgage is that while a residential mortgage is used to finance the purchase of a residential dwelling; a commercial mortgage is used to finance the purchase of any type of commercial and business related real estate.

Like most residential mortgages, a commercial mortgage can be negotiated for up to about 25 or 30 years. This type of arrangement makes it much easier for business owners who are just starting out to spread out the cost of their commercial purchase over a number of years and therefore reduce the mortgage payments to a manageable amount in the early years of the business when money is likely to be tight.

When a business owner applies for a commercial mortgage, the approval process is also likely to be quite similar to the process of being approved for a residential mortgage. Most financial institutions and commercial mortgage companies will only approve loans for up to a specific percentage of the total purchase price. A 75% loan to value ratio is quite common in commercial mortgages. This means that if a piece of commercial real estate costs $700,000 then the bank will only be willing to make a loan of $525,000 and the borrower must come up with the remaining $175,000. In order to approve a business owner for a commercial loan, lenders generally require the loan applicant to present a business plan which lists project business profits, risks and other types of information that will allow the lender to determine whether or not the business will be successful and able to pay back the long term commercial mortgage loan.

A commercial mortgage can also be used for the purpose of funding the construction of a commercial building. Many business owners will also obtain a short term construction loan to fund the initial construction of the facility and then become approved for a longer term commercial mortgage in order to drive down the mortgage payments.

There are usually a number of flexible options available in commercial mortgages so that business owners can obtain the best terms to suit their individual situations. These various options generally include adjustable interest rate loans versus fixed rate interest loans as well as loan deferments. In a mortgage loan deferment, the business owner may be able to defer some or all of the interest and principal payments to a later point in the loan, when he or she believes they will be in a better financial position to pay them.