While offices and factories are important for any

business, purchase or construction of these premises will divert

the ever-important capital from regular business expenses. If you

are thinking of extending the lease period of your property then

wait. Rental of leased properties put a much higher cost on the

business. Even after years of paying the lease, you continue to

be the leaseholder. In this article, the author has tried to show

how commercial

mortgages offer a middle path.

While the entrepreneur becomes a property owner with the help of

commercial mortgages, the sum that he has to expend every month

or quarter will be equal or sometimes lesser than what is being

offered on lease, thanks to the low commercial mortgage rates.

Those who are conversant with the residential mortgages will not

find commercial mortgages very different. The only difference lies

in the fact that commercial mortgages are designed for the businesspersons.

Nowadays, businesses are readily making use of commercial mortgages

to not only purchase property, but also raise finance for other

business purposes.

Commercial mortgage rates may generally take two forms. The first

is when the market forces are given a free hand, and the commercial

mortgage attracts interest at the commercial mortgage rate prevailing

in the market at that point of time. Though this method has been

used conventionally, the regular ups and downs in the figure is

seen as a drawback. The second form of commercial mortgage rate

is the result of this drawback. In this method, the commercial mortgage

rate is locked to a rate for a particular period or for the entire

life of the mortgage. Keeping the commercial mortgage rate locked

for a particular period may cost the borrower some extra points

or fees for the lock period. The fees will be welcome as long as

it insures against rising commercial mortgage rates.

A point that further goes in favour of commercial mortgage is that

the interest paid is tax deductible. Moreover, any proceeds received

from the commercial mortgages are not included while calculating

the taxable income. Nevertheless, before you assure yourselves regarding

the fact, it will be safe to confer with a tax consultant, if the

purposes to which the proceeds have been used come under the purview

of business purposes under commercial

mortgages.

Like in any mortgage, the lender has a lien over the property of

the entrepreneur that he exchanges for commercial mortgage. This

lien is to be exercised only in the event of non-payment of the

due amount. In all other cases, the borrowing enterprise gets the

property rights back after the last of monthly repayments have been

made. Property serving as collateral does not interfere in the enterprise’s

right to continue its operations in the property.

Early redemption charges are a thing of the past now. Many lenders

used to include this clause in order to prevent borrowers from switching

over to other mortgage lenders by refinancing commercial mortgages.

The early redemption charge used to be either for the whole term

or for a certain number of years. The idea was to compensate the

lender for the commercial mortgage rate that he lost through premature

settlement. Even today, some lenders would have this clause included

in fine print. It will be prudent to carefully read for this and

several other clauses that can trigger problems in the future. The

early redemption charge can be brought down through proper negotiation.

Lenders will recommend a different method of using commercial mortgages,

when the purpose is different from buying business property. Refinancing

an existing mortgage and including the sum needed by the enterprise

in the new commercial mortgage is one of the methods. In an equally

popular method, the lender would open a line of credit in favour

of the businessperson. The amount that is credited is the difference

between the present market value of the business property and the

unpaid amount over the commercial mortgage.

As compared to the process of searching and deciding several issues

involved in a commercial mortgage, the application process is simple.

It will not require more than a minute to fill in the details of

the mortgage on the application form given in the loan providers

website, that almost every bank and financial institution has nowadays.

Online processing of commercial mortgages has added to the speed

with which these are approved.

Summary

Commercial mortgages are a way out for the businesses that are stuck

on the decision to buy or take business premises on rent. A decision

to buy property through a lump-sum payment will entail locking too

much money in a non-business expense. If the property is taken on

rent, the tenant continues to be thus. Through commercial mortgage,

the entrepreneur becomes property owner by making payments in small

monthly instalments; thus combining the advantages of both the options.

Read more about commercial

mortgages in the following article.