Mortgage Advisors

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Commercial Mortgage

A commercial mortgage is similar to a residential mortgage except the loan is taken out for a commercial building or other type of business real estate instead of a home. While residential loans are taken out by individuals, commercial loan borrowers are usually partnerships, incorporated businesses, or limited liability companies. With this type of borrower, it is more difficult to make a credit assessment. Most commercial mortgages are non-recourse. Non-recourse mortgages are loans for which the borrower will never be held responsible for more than the value of the property at the time of repayment. In some cases, however, the mortgage can be supplemented by a general obligation of the borrower. This obligation makes the debt payable in full even if the foreclosure of the collateral does not meet the outstanding balance.

In the United States, most commercial mortgages require a monthly payment that would repay the loan over twenty or thirty years but require a balloon payment after a shorter period of time, such as ten years. Once the borrower hits the ten year mark, they will usually try to refinance. Commercial mortgage terms usually consist of the time period permitted until the balloon payment and the amortization. The duration of a commercial loan can be from five to thirty years. Commercial mortgage loans typically carry higher interest rates than residential mortgage, and are most often fixed-rate loans.