by Poonam

Created on: February 02, 2007

Mortgage loan is a real estate loan that helps a person to acquire a property for residential or commercial purposes. Commercial mortgage loans are often taken by the business to acquire an office, land, stores, and hotel or for merging a business, commencing a business or expanding it. It is generally referred to as a secured loan as the lender keeps the commercial property or building as collateral to make sure that the repayment of the loan is secured.

It is an elementary method to get the finance for owing a commercial property. The borrower could be a single person or partners running a same business. The interest rate is higher than the residential loan. The interest rate could be fixed or variable. Commercial Mortgage loan are mostly fixed in which the interest rate remain unchanged throughout the term. On the other hand, in variable interest rate, the interest rate keeps changing with the change in the market trend. The duration of the loan can vary from 5 to 30 years but it is usually 15 to 30 years in commercial mortgage loans to keep the monthly payment low.

Commercial mortgage loan can be borrowed either from a bank or from a broker. Banks may provide better rate but they have standardized guidelines that have to be followed and also state the minimum loan amount that a borrower can acquire. If the borrower requests for the lesser amount, the bank may reject his application or may compel the borrower for a minimum amount that they offer. On the other hand, the brokers are flexible. They help in structuring the finances and can provide better interest rate. If a person has a good credit history, the interest rate will be low. The borrower should converse with various brokers to get the best rate in the market. An easier way is to fill in the application online on few website which will give the borrower better idea and in turn, numerous quotes. Most of all, don't forget to read the fine print on the website.

Once the broker that is providing the best quote is finalized, the required documents have to be submitted. The documents include the credit report, business profile, the assets and the liabilities that the business may have, tax return for the past two years and the commercial property papers that has to be kept as collateral. Upon approval, the broker generally asks the borrower to make 20% down payment which is the 20% portion of the entire property amount. The broker mostly offers up to 90% LTV (Loan to valuation) and if 20% payment is made by the borrower then the loan to value ratio becomes 80%. LTV is an important factor that determines the level of risk involved. The higher the LTV, higher is the risk for the lender.

It is always recommended to perform all the research before approaching the broker. That might help the borrower in negotiating the interest rate with the broker and there is good chance of getting a fair deal. The influence that the broker gets for the first time they are dealt with can be a key for successful deal. The borrower can get the closing soon with a better interest rate. Commercial Mortgage loan is the best for commercial property as it is valuable for business prospects, growth, merging or commencement.

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