A commercial mortgage is a loan used to finance the purchase of a commercial property. Businesses or investors usually take out commercial mortgages to purchase office buildings, retail units, warehouses or factory units.

If you are taking out a commercial mortgage, there are a few things you need to know. In this article, we will discuss the items you need to do to qualify for a commercial mortgage and some of the details you need to be aware of.

1. The Down Payment

One of the most significant discrepancies between residential and commercial mortgages is the down payment size. The down payment is usually around 5% of the purchase price for most people buying a house. However, for a commercial property, the down payment is usually 25% of the purchase price. 

This means that you will need to have a lot of cash on hand (or access to capital) before you can even think about buying a commercial property.

2. The Lending Requirements

To certify for a commercial mortgage, most lenders will require that you have at least two years of experience owning and conducting a business. They will also want detailed financial statements for your business and tax returns for the last two years. If self-employed, expect to provide even more documentation to the lender.

3. The Interest Rates

Commercial mortgage interest rates are usually higher than residential mortgage interest rates. This is because commercial properties are considered riskier investments than residential properties. 

However, the exact interest rate you will qualify for will depend on several factors, including the type of property you purchase, your credit score, and your income.

4. The Loan Terms

The loan terms for a commercial mortgage are also different from those of a residential mortgage. Most residential mortgages have terms of 30 years, but the terms for commercial mortgages are usually shorter, ranging from 5-20 years. This means you must be prepared to pay off your loan much sooner than you would with a residential mortgage.

5. The Fees

When taking out a commercial mortgage, expect to pay more in fees than you would with a residential mortgage. These fees include an appraisal, origination, and closing costs, which can all add up quickly. Sometimes, these fees can be rolled into the loan itself, but ask your lender about this before signing any papers.

Conclusion

Holding out a commercial mortgage is a huge decision and one that should not be taken lightly. However, if you research and know what to expect, getting a commercial mortgage can be a great way to finance your first commercial property purchase. Just remember to budget for a larger down payment, prepare yourself for stricter lending requirements, and be prepared for higher interest rates and fees. With this knowledge, you will be well to becoming a successful commercial property owner!

Mills Financial Group is a proud member of TMG The Mortgage Group, an award-winning Canadian mortgage brokerage. We offer residential and commercial mortgage services to Canadians from coast-to-coast. Our team is dedicated to finding the best mortgage solution for you, so please do not hesitate to contact us if you have any questions or would like to discuss your mortgage needs in Ottawa.