What is Commercial Mortgage and its Top 7 Benefits
As the business expands, it requires more space to add more staff, maintain efficiency in handling sales, or add new equipment. These can be reasons for relocating to new premises but the finance can be an obstacle.
Then Commercial Mortgage Brokers might be the solution.
It is usually the best option for company owners who want to avoid increased rents. Many businesses that have expanded successfully and are building up a new workspace or considering moving beyond their current commercial property are familiar with the procedure. To learn more about Commercial Mortgages in Surrey BC, let’s go over this article.
What is a Commercial Mortgage?
When a mortgage is obtained on commercial real estate, it can be referred as commercial mortgage. Instead of an individual, the borrower is usually a company or business.
The business may be incorporated, a limited liability company, or a partnership. The primary applicant will be the business that submits the mortgage application. Primarily, the subject property must be eligible. If the subject property does not match the debt ratio criterion, the lender will look to the business or person purchasing the commercial property.
Commercial mortgages are more complex than standard residential mortgages. Even if you are purchasing a home as an investment and want to utilize it as a rental property in Surrey, Vancouver, BC, it will still be eligible for a commercial mortgage. Even the mortgage for your second home is regarded as a commercial mortgage because it is not for the property where you would reside.
Top 7 Benefits of Commercial Mortgage
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- Lower Interest Rates – Mortgages for commercial real estate usually have lower interest rates than other unsecured borrowings. By opting for fixed monthly repayments, you may precisely use them in your business planning and forecasts as it would give you more certainty when structuring your company’s financing.
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- Capital Gains – Since real estate prices in Surrey, BC have been rising for a while, there is a significant likelihood that the value of the commercial property you purchase will increase. When you sell the property, this might give you a lump sum amount that you can invest in or put towards your retirement. However, you will be required to pay capital gains tax on the profit from the sale of the property.
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- No Wastage of Money on Rent – Most likely, the monthly cost of your mortgage payments will be no more than the cost of your rent. On the other hand, if you continue to pay off your mortgage and own the building, your equity will increase, giving you a stronger financial base.
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- Supports Other Operations: – Commercial property mortgage payment plans often extend for years, allowing a business to concentrate on other crucial business issues like sales, controlling expenses, and personnel training.
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- Earn Money by Renting Out a Portion of Your Property – If you own the property, you can rent out any extra space or land that is connected to it. By renting out offices, parking spots, storage space, etc., you may earn a considerable additional income. On the other hand, if you are living in a rented property, you cannot rent out space unless the landlord has given his or her consent.
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- More Flexibility in Building Presentation – When customers and clients come to your location either to make purchases or to attend meetings, your business location may have a significant impact on your company’s image. You have complete control over how your business is perceived as being professional if you have control over the building in terms of outside displays, décor, landscaping, etc. When you rent a place, the landlord has authority over important things like interior design, facility management, exterior maintenance, and everything else that is visually appealing.
- Terminating a Mortgage – If you are unable to pay your mortgage, need to move to larger premises, or decide to stop your firm, you still have several alternatives if your mortgage is commercial. While moving out of a long-term lease might be challenging, a mortgage can still be covered if you decide to sell the premises or rent it out while maintaining the asset
Qualification Requirements for Commercial Mortgages
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- Debt Service Coverage Ratio – This is the first factor lenders assess since it indicates your company’s available cash flow vs loan payments. Depending on the amount of the mortgage, they may also want some payment upfront.
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- Credit History of the Borrower – Your business should have a good credit history and as little outstanding debt as possible in order to qualify for a commercial mortgage. You might also require a high personal credit score to ensure that all payments are completed on time.
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- Business Type – It is important to understand that the conditions of a commercial mortgage often rely on the sort of business you own and the type of property you intend to purchase. This is a very complicated topic, so you should seek an expert’s advice.
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- Down Payments – Commercial properties typically require a larger down payment. What is the Down payment criteria for a Commercial mortgage in Surrey, Canada? A normal down payment for a mixed-use property, for example, is between 20% and 30%. Remember that the percentage for commercial property is normally greater, about 50%. The amount of down payment that you may require to pay is determined by your entire risk profile.
- The Present Business Situation – Assume your business is fully operational; commercial mortgage lenders anticipate consistent cash flow and profitability. Your commercial lender may need financial estimates and a company strategy. Remember, your potential lender wants to make sure you can make your monthly payments on schedule.
Ready For Your Next Move?
Alpha Mortgage House Corporation is a Mortgage Broker in Surrey, BC. We provide mortgages for Home Purchases, Project financing, Second mortgages, Commercial mortgages, Mortgages for first-time home buyers and more. Alpha Mortgage is a one-stop solution for all your mortgage needs. Our team works with top lenders to provide you with the best financial options.