A commercial mortgage is a common way for many businesses to get the money needed to finance a property purchase or business project. It’s the same in Canada, but the commercial mortgage market is active and dynamic. It’s best to connect with a mortgage professional to have a full picture of how you can best navigate.

For now, continue reading to look at how commercial mortgage works.

How Does Commercial Mortgage Work?

A commercial mortgage is used to finance a purchase or project. As the name suggests, a commercial mortgage is meant for commercial enterprises. Still, there are instances when it can also be used for non-profits or government entities to fund a property purchase or project.

The loan amount is based on the actual value of the property, which is the amount that the lender typically uses as a base. Other factors can affect the overall amount, just like a traditional loan, such as the term of the loan and the interest rate.

How Does Commercial Mortgage Differ from Residential?

Even though they are both mortgages, a commercial mortgage is noticeably different from a residential one. There are already apparent differences, such as the fact that a commercial mortgage is not used to purchase a home. Unlike a residential mortgage, it can be used for buying a business premise or financing a project.

Here are other points of difference to keep in mind:

• Requirements. Because a commercial mortgage can be used for anything related to a business, there are some higher requirements. For instance, the eligibility can vary since commercial mortgages are mainly for partnerships, corporations, and limited companies.
• Downpayment. Commercial mortgages have a higher downpayment than residential ones, which can be between 20% and 35% of the property’s value. Plus, the term for a commercial mortgage can be for 20 years or longer.
• Interest Rates. The interest rates for commercial mortgages are higher compared to residential mortgages. Plus, like any other mortgage, the commercial mortgage is also taxed. The interest paid is subject to tax.

What Are Properties Commercial Mortgage Is Applicable To?

Commercial mortgages are used for properties that you’re going to use for your business. Since it is dedicated to those funds, it’s natural to wonder about which properties commercial mortgage is applicable to.

While a commercial mortgage applies to a large variety, here are some specific property examples:

• Farmland. Farmland properties used to produce products or commodities and raise farm animals are valid for a commercial mortgage.
• Multi-Family Units. Apartments, condominiums, and other multi-family units will be managed and put on the market for rent.
• Construction. A commercial mortgage is used to acquire land and pay for the construction of the property.
• Hotels. Hotel properties that will be used as hotel space or for a hotel chain.
• Offices. Office properties that will be used as office space or for a business.
• Industrial. Industrial properties that will be used to manufacture and process goods.
• Retail. Retail properties that will be used as a retail space or place of business.

Conclusion

Even though a commercial mortgage can be used for many commercial properties, it’s still important to get help from a commercial mortgage broker. They’ll help you understand what to expect for the process and more.

In need of a commercial mortgage? Mills Financial Group in Ottawa is part of The Mortgage Group, an award-winning Canadian mortgage brokerage with a national team of over 800 qualified and accredited mortgage brokers, agents, and associates. Get in touch with us today!