A commercial mortgage is a mortgage loan granted to different type of businesses secured by commercial property. Commercial loans are available for both owner-occupied and investor properties, including office building, shopping center, industrial warehouse, or apartment complex. Borrowers can have up to 90% commercial financing and unlimited cash out options. The proceeds from a commercial mortgage are typically used to acquire, refinance, or redevelop commercial property.
When getting a commercial mortgage consider nonrecourse vs. recourse loan. Nonrecourse commercial mortgage can become very beneficial in certain situations. Such as in the event of default with a nonrecourse loan, the bank can only take back the property. If you still owe more money than the property is worth, you will not have to pay any more.
There are many different types of commercial loans available for them. Here are some of the various kinds and what they are used for:
A fixed-rate mortgage (FRM) offer a monthly payment that does not change over time, and result in a portion of the loan's principal being paid down every month. Typically, the shorter the loan period, the more attractive the interest rate will be. It was the first mortgage loan that was fully amortized (fully paid at the end of the loan) precluding successive loans, and had fixed interest rates and payments. Fixed rate fully amortizing loans have two discrete features:
The most common terms are 15-year and 30-year mortgages, but shorter terms such as 10 year are available as well. 15 or 30-years are the most popular fixed rate mortgage loan terms. A 30-year amortizing loan typically has lower payments than a 15-year loan, but a slightly higher interest rate than a 15-year loan.
Payments on fixed-rate fully amortizing loans are calculated so that the loan is paid in full at the end of the term. During the early amortization period, a large percentage of the monthly payment is used for paying the interest . As the mortgage is paid down, more of the monthly payment is applied toward the principal.
Adjustable Rate mortgage (ARM) also called as variable-rate mortgage is a mortgage loan where payments will fluctuate over time. The initial interest rate will be lower than that of a fixed rate mortgage; however, changes in the market could result in increased interest rates, which will ultimately effect the monthly payments.
For borrowers whose income may go up, an adjustable rate mortgage might be the best options because of early lower payments. Some loans are fixed for a certain period of time, and then they turn into adjustable-rate loans. For example, a 3/1 ARM loan offers a fixed-rate for the first three years, adjusting once a year thereafter. A 5/1 ARM loan offers a fixed-rate for the first five years, adjusting yearly thereafter.
In ARM, the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets. Among the most common indexes are:
For the borrower, adjustable rate mortgages may be less expensive, but at the price of bearing higher risk. Many ARMs have "teaser periods", which are relatively short initial fixed-rate periods (typically one month to one year) when the ARM bears an interest rate that is substantially below the "fully indexed" rate. The teaser period may induce some borrowers to view an ARM as more of a bargain than it really represents. A low teaser rate predisposes an ARM to sustain above-average payment increases.
Ask our Loan Originator about these and other special kinds of mortgages that fit your specific financial situation.
Balloon mortgage is most commonly used for commercial mortgage. Balloon mortgage payments does not fully amortize over the term of the note, the last payment includes all remaining interest and unpaid principal, and often comes to quite a large total. This introduces a certain amount of risk, but they can be quite beneficial if borrower is anticipating immediate cash flow for his/her business venture. Balloon mortgage loans are a good product for people looking for a lower interest rate.
Adjustable rate mortgages are sometimes confused with balloon payment mortgages. The difference is that a balloon payment may require refinancing or repayment at the end of the period (if you are unable to repay the entire balance); some adjustable rate mortgages do not need to be refinanced, and the interest rate is automatically adjusted at the end of the applicable period. Balloon payments are often prepackaged into what are called "two-step mortgages." In this type of mortgage, the balloon payment is rolled into a new or continuing amortized mortgage at the prevailing market rates.
Balloon mortgages are most popular with 2nd mortgage notes, such as a 30 year amortized note due in 15 years (30/15). The monthly payment with a 30-year amortization will be lower than if the property is financed with a 15-year mortgage. The interest rate for the five or seven-year period may be lower than the rate for a 30-year fixed rate mortgage. The goal with a balloon payment mortgage is to obtain a low, fixed monthly payment with the plan of selling the property at a profit before the balloon payment is due. You can also refinance your balloon mortgage prior to its maturity and obtain a new fully amortizing loan.
An interest-only loan is a mortgage loan in which, the borrower pays only the interest on the principal balance, for a set period of time. Principal balance remains unchanged during the set term. At the end of the interest-only term the borrower has many options, such as:
Interest only commercial mortgages can play an important role in helping a business trying to get off the ground. When finding cash flow for the investment is difficult, interest-only mortgage can be a very good option. On the other side interest-only loans represent a somewhat higher risk for lenders, so expect a slightly higher interest rate. Also considering today's fluctuating real estate market, the borrower may end up paying more than the actual value of the property when the interest only commercial mortgage loan is finally paid off.
The SBA offers numerous loan programs to assist small business owners to start, manage and grow their businesses. Here are some of the most popular SBA loan programs:
SBA Express Program
SBA Patriot Express Pilot Loan
7(a) General Small Business Loans
Real Estate & Equipment Loans: CDC/504
We have a long and reliable working relationship with a complete range of 330 lenders nationwide. We have the ability to provide the borrower with a wide range of financing commercial & business opportunities to help achieve their long term goal. Below is broad category list of the commercial property types we work with and MORE!:
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Healthcare / Medical Loan
Hotel / Motel Loan
Industrial Building Loan
Office Building Loan
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A hard money loan is mainly based on the value of the property as collateral and typically you can get a loan up to 70 percent of the property value. If you are tight on schedule and looking for a quick loan process with minimum paperwork. Hard money loans are the way to go (almost same as you are purchasing with cash). They have relatively high interest rates and costly fees compared to conventional loans. Hard money loans do serve a purpose to those who need money fast.
Hard Money Loans range from $20,000 to millions of dollars. Terms vary but you can have very short terms up to three years with a variety of upfront costs and an interest rate that is typically higher than subprime rates.
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If you have a commercial financing need, Our company has a program for you. Whether you desire to purchase, refinance, or construct a commercial building, we are your best source for financing.
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