When you are looking to buy an office space or a shop, it’s always better to opt for the commercial property ones instead of going for the regular housing loans.
What are the features of these loans?
To understand what a commercial real estate loan is, it’s best to take a dive into its features.
- These loans are given strictly for purchasing or leasing commercial spaces like office, or shop, outlets, clinics etc.
- These loans also cover for construction, extension and improvements in your pre-existing office spaces or clinics etc.
- You can also take loan for renovating or transferring of commercial properties etc.
- Generally when you are dealing with expert commercial real estate loan providers amongst the country they provide you with legal and technical counsellors for understanding of the terms and conditions
- Generally these loans doesn’t require much time and their processing is pretty agile.
- Most of the leading financial agencies provides flexibility in repayment especially on monthly tenure basis.
What is the difference?
If you are wondering on what’s the actual difference between a special Commercial Property Loans 80 lvr and an ordinary residential loan then here are the four key ones.
- Income factor
When you go for a residential loan the lending agency checks your monthly income and also the amount of current debt you have in the market. Whereas when it’s commercial mortgage you are looking to get, it is your business and the ability of your business to generate income based on your profit that is being evaluated. Generally if your debt coverage ratio is around 1:1.25, you can easily get your commercial real estate loan. 2. The down payment method
Generally in the market of residential loans, down-payment is always negotiable. In fact nowadays as every financial corporation is fighting over to give loans the concept of zero down-payment has also come into play. However as commercial mortgages are considered to be bit riskier around 20% of down payment is necessary along with around 80% of loan to value ratio.
- Term of payment
The term of payment for ordinary housing loans are longer and it generally ranges around 30 years and even more at times.
Due to its posing risks, the term life of paying commercial real estate loans is much lesser. Generally the repayment term is around 10 years although some of the premier lending agencies in the country provides scope for negotiation.
- Penalty policies
This is an extremely important aspect for both the loan types. Generally you can payoff the entire payment money regardless of your term length at any time you want, without having to pay any penalties for residential loans. Moreover, at times when interest rate drops you have scope for refinancing as well. But generally for prepayment of commercial loans you have to pay penalties. The penalty amount reduces with each passing year.
To wrap it
In the end, it needs to be concluded that although interest rates and few bars for disbursing commercial real estate loan is stringent, in the long run, this loan proves to more beneficial than ordinary residential ones.
