Commercial Mortgages

A commercial mortgage is very different from a residential mortgage and far more complex. Commercial mortgages are typically taken by a business enterprise it may be a partnership, a corporation or a limited company business. The company may want a commercial loan to construct a business venture, to purchase a business property, to expand their offices or to construct a business place. For example a company may want to construct a shopping mall or a hotel. The only collateral in a commercial mortgage is the property. So if there are any defaults on payments of installments the lender will only get the property and can sell it to recover the loan. As a business venture may do well or may fail that is why commercial mortgages have a greater risk factor then residential mortgages. The commercial mortgage lenders will require the business that is looking for a commercial mortgage to show the credit worthiness of their business that is if they have a current business established or the long term profitability of the proposed business for which they are seeking a commercial mortgage. There are commercial mortgage brokers who specialize in commercial mortgage loans and commercial mortgage rates are higher then residential mortgage rates. There is another difference that a commercial mortgage lender will offer a 10/30 or a 15/30 loan and not a 30/30 loan as is the case for residential loans. This means that a residential loan is taken for 30 years and is paid off in installments that stretch over 30 years. Whereas in a commercial loan which is lets say a 10/30 loan the borrower would require paying the balance of the loan at the end of 10 years. For example a loan of $10 million at 8% for 30 years is taken the annual payment would be $ 880517 and at the end of 10 years the borrower would have to pay the remainder which would be $ 1194830.

Most commercial mortgage lenders will give a commercial mortgage loan for periods over 10 years also they may require the borrowers to show the projects projected earning over the period of the loan to determine what can the borrowing firm pay as installments. The commercial mortgage lender may require a minimum ‘debt service coverage ratio’ which may range from 1.1 to 1.4. This is the net cash flow. For example for an office building the rents collected are $200,000 per month and the expenses that are paid are $ 80,000 per month the net cash flow ratio would be worked out as (($200,000-$80,000)/1.1)) which is $ 109091. This means that the lender would not give a commercial mortgage loan where the monthly mortgage payment exceeds this amount. So taking a commercial mortgage loan is far more difficult then taking a residential mortgage loan as the commercial lender has to be sure about the viability of the project for which the commercial loan is being taken and also the credibility of the organization that has applied for the commercial loan. Also the loan to value ratio for a commercial loan is lower then that of a residential loan. It is typically 65%to 80% as compared to residential which is 80% and higher.

All mortgage companies do not deal in commercial mortgage loans and the commercial mortgage calculator is also different. The commercial mortgage brokers list in California is quite extensive as a lot of commercial mortgage lending is done in California. Commercial real estate mortgage and buy to let mortgage is very different from residential mortgage and the commercial mortgage brokers and the commercial mortgage lenders are specially trained to handle commercial loan mortgages.