Commercial Mortgage Terms

The best way for a business to keep mortgage costs low is to get the best terms that it can on a commercial mortgage.

The terms are the provisions in the mortgage that tell the borrower how many payments they will make and how long the mortgage will last. For example a 30 year mortgage will have terms that specify the holder has to make a payment every month for 360 months.

Mortgage terms may also require mortgage insurance and specify repayment. Some mortgage terms will be restrictive while others will help the mortgage holder reduce costs.

Some Mortgage Terms to Avoid

One mortgage term to avoid is a flexible or floating rate mortgage. In a floating rate mortgage the interest rate is pegged to the market interest rate that lenders pay when they borrow money to underwrite mortgages with. When the market interest rate goes up and down the mortgage interest rate goes up and down.

With a floating rate mortgage the amount of the mortgage payment can change each month. This can make it hard for a business to budget money to make mortgage payments with. It can also make it difficult to free up cash flow for other purposes.

Another mortgage term to avoid is an adjustable rate mortgage or ARM. In an ARM the lender can change the interest rate at some point during the life of the mortgage. This can lead to a higher interest rate and make it harder to budget.

Commercial Mortgage Terms to Ask For

There are also some terms that business owners should look for when they go mortgage shopping. These terms reduce the cost of mortgages and make it easier to budget money.

The best mortgage deal is usually a traditional 30 or 40 year mortgage with a fixed rate. This is the mortgage with the lowest monthly repayments so it can free up money for other purposes. A fixed mortgage interest rate doesn’t change so the mortgage payments will be the same every month. This means a business should look for a fixed rate mortgage.

Another good term to look for is a mortgage that doesn’t require private mortgage insurance. Private mortgage insurance can increase the cost of a mortgage. Some mortgages require those who don’t make a 20% down payment to buy private mortgage insurance. Private mortgage insurance covers the expenses of foreclosure if somebody defaults on the mortgage.

How to Get Better Terms

There are a number of actions that a business can take in order to get better terms on a commercial mortgage.

The best way to get good terms on a commercial mortgage is to make a large down payment usually around 20%. Lenders are more willing to give businesses that make a large down payment, better terms; because it lowers the risk.

Businesses can also get better terms on a mortgage by improving their credit score. Businesses with a lower credit score will usually get lower interest rates and better terms.