Guide to Commercial Mortgages
In most ways a commercial mortgage is just like a residential mortgage – after all, money is borrowed from a bank against the value of a property and the borrower then has the finance in place to be able to make the move. They can also be used as a means to raise money through remortgaging, just as a residential mortgage can as well. There are a number of different questions that everyone should ask though before they jump into a mortgage of this type, many of which are detailed below…
How Long Do I Need to Pay the Mortgage Off?
As with residential mortgages, a commercial mortgage can run for anywhere up to 30 years, therefore meaning that it is a much more long term decision than a loan or other financing option. Basically this means that you must decide on a reasonable repayment plan that keeps the mortgage as short as possible – therefore limiting the amount of interest paid – but that is also within your financial means. After all, taking a mortgage out that is too short will often result in it not being paid and therefore you getting into financial difficulties.
Should you find yourself in a position whereby you don’t need a long time to pay off a mortgage, there are other options that could also be considered, including bridging loans. It is always prudent to check around and therefore ensure that you are getting the best deal, both in terms of interest paid and the amount of time there is to make repayments.
It is also important to figure out how long it will take to pay off a mortgage due to the fact that many lenders will place an early redemption clause into a contract. This means that should you pay the mortgage off early, they will charge a fee designed to get back some of the money they would have made in interest should you have paid the mortgage for the required number of years. As competition hots up though, many companies are dropping this clause as an incentive for buyers.
Does a Mortgage of this Type Affect My Tax?
Unlike a residential mortgage, a commercial mortgage can be a beneficial thing when it comes to your tax, as the interest paid is usually tax deductible. Also, the net income made from a loan is usually not taxable as well, although this should always be checked with the company that you take the mortgage out with, just so as to avoid any nasty surprises.
What Types of Mortgages are there?
There are generally two types of this kind of mortgage – fixed rate and variable rate. A fixed rate mortgage will have an interest rate that is consistent throughout the period of the mortgage and therefore will not change as economic conditions fluctuate. A variable mortgage will change based upon the figures released by the Bank of England, therefore meaning that you will pay different amounts every single month.
Generally a fixed rate mortgage is best when you feel that interest rates could easily rise in the coming years. However, if interest rates are fluctuating wildly and the market looks to be heading in a downwards direction, a variable mortgage could be the best option. This decision can only be taken by having a good insight into what the future markets could be like – for those without a sound financial knowledge, a fixed mortgage is the safer route.