Commercial Mortgages

Features

• Fixed interest rate—Irrespective of outside influences, market movements, or inflation, the interest rate on the loan remains constant for the duration of the mortgage.
• Principal/interest repayments—If agreed, clients can opt to make a combination of repayments against the interest accrued, including principal only, principal/interest, and interest only (typically for investment purposes) 
• Variable loan amounts
• Low monthly fees—It is possible to secure a commercial property mortgage at a fixed rate of interest with negligible monthly fees. Some lenders have no fees at all. 

Benefits

• Predictable costs—As the monthly repayments are fixed, there are no nasty surprises if interest rates elsewhere suddenly hike. This makes planning future finances and implementing business strategies much simpler, as the element of the unknown is taken out of the equation.
• Flexibility—When the fixed period ends, you may be offered the option to refinance the loan or switch to a variable interest rate. 

Other factors to consider

• Break costs—If you attempt to refinance the loan or are in a position to pay it off entirely during the fixed-rate period, you will almost certainly incur additional penalty costs. 
• Limited additional repayments—Depending on the terms and conditions of your commercial property mortgage, it may not be possible to make additional repayments above the agreed amount without penalty fees.

Variable-Rate Commercial Mortgages

Variable-rate commercial mortgages offer the following features and benefits:

Features

• Variable interest rate—The interest rate on the loan rises and falls with the wider market fluctuations. 
• Flexible repayments—As we saw with fixed-rate commercial mortgages, options for principal, principal/interest, and interest-only repayments may be offered. 
• Redraw option—Depending on the terms of the loan, it may be possible to draw cash against it in times of need. 
• Longer loan terms

Benefits

• Significant potential savings—Provided interest rates fall or remain low, repayments will follow their level. This can create significant savings and free up finances for distribution elsewhere. 
• Penalty-free additional repayments—Unlike a typical fixed-rate commercial property mortgage, paying off the loan faster during profitable business periods does not incur fees.

Other factors to consider

Interest rate fluctuations—While interest rates may decrease and save money, they can also rise alarmingly and necessitate much higher repayment amounts. Speak to your MGB Public Accountants expert for guidance on this and an assessment of your company’s ability to manage any future rate rises.

Interest-Only Commercial Mortgages

An interest-only commercial property mortgage has the following features and benefits:

Features

• Interest-only repayment period—Typically, the first five years of commercial mortgages of this nature require repayments on the interest only.
• Variable loan amounts
• Flexible terms—Once the agreed period of interest-only repayments expires, most commercial mortgages in this category switch to a more traditional principal/interest structure.

Benefits

• Reduced initial costs—By making repayments on interest-only for the first five years, cash flow can be diverted elsewhere to aid business operation, growth, and investment. 

Other factors to consider

• Elevated long-term costs—Although the initial costs will be lower, the loan’s overall amount will likely be higher as interest repayments continue for longer. 
• Significant repayment increases—Once the interest-only period expires, the principal becomes part of the equation. This can significantly raise the amount of each repayment.

How to Apply for a Commercial Mortgage

• Prepare your documentation
• Research and choose a lender
• Submit your application
• Await approval and underwriting
• Review and sign the loan agreement
• Receive the funds