3 common commercial mortgage terms explained
Choosing your commercial mortgage is a huge decision but the specialist language used by brokers and lenders can get confusing. To help make sure our clients fully understand the details of their commercial mortgage arrangements, our expert brokers at FC Funding have identified three common terms that are often misunderstood.
Loan to Value
Loan to Value (LTV) refers to the ratio of the commercial mortgage loan to the value of the asset you wish to purchase. It is expressed as a percentage to reflect the portion of the property that is mortgaged and the portion that is yours, or your equity. For example, if you wanted a commercial mortgage of £150,000 on a property that is valued at £200,000, your Loan to Value would be 75%. The Loan to Value determines the interest rate you will pay on your commercial mortgage and can affect which products the lender will offer you.
Owner Occupied Commercial Mortgages
An owner occupied commercial mortgage is a special type of mortgage designed for those looking to buy a property from which to operate their business. As the borrower has a personal interest in the success of the company, lenders see this mortgage as a low risk investment so those looking to own their own offices can benefit from a loan to value of about 70-75%. What’s more, owner occupied commercial mortgages tend to charge lower rates while the term of the mortgage can be longer than usual.
Commercial mortgage interest rates
When you take out a commercial mortgage, throughout the term you will be charged a fee, or interest, by the lender for borrowing the money. The amount you’ll have to pay is usually influenced by the Bank of England’s base rate and can be either fixed or variable. Fixed interest rates mean you agree the same monthly rate with the lender for a specific period of time. A fixed rate mortgage gives you a greater degree of security because you’ll know exactly how much your monthly payments will be, and it protects you if Bank of England rates go up. On the other hand, a variable rate commercial mortgage can fluctuate over time as it depends on the wider economic circumstances. Due to the uncertainty of this option, the initial rate is often lower than fixed rate, but you have no protection if interest rates suddenly rise.
Our expert brokers have years of experience arranging commercial mortgages tailored to our clients’ individual needs. To find out more about our commercial mortgage service, contact us today on 01202 937880.