Commercial Property Mortgages Explained

With any type of property financing, there are advantages and disadvantages. The investor and dedicated commercial consultant need to assess the individual situation and provide the appropriate guidance to ensure successful commercial investment. The advantage of arranging a flexible commercial mortgage for the investor is the ability to make over payments and under payments to suit the individual. This gives the investor the ability to offset interest charges with credit balances and even allows the mortgage to be repaid early without penalty. This type of funding suits an investor with varying levels of cash flow over the course of the year. The disadvantage of flexible financing is of course that the monthly repayable amounts can fluctuate with interest rates, a risk investors take with this kind of mortgage.

Investors who would benefit from a flexible commercial mortgage are owner-occupied businesses. If the business has a fluctuating cash flow, then overpayments can be made at times of strong cash flow, which can then be utilised as reserves as and when cash is tighter within the business. Similarly, if a business has big cash balances then a flexible commercial mortgage can be structured to allow the interest accrued to offset the interest payable on the business loan.

For successful commercial property investment, the most common preferred option for both lender and borrower has traditionally been to arrange a loan repayment in line with rental covenants, and with repayments in proportion to the rent receivable. However, even investors are now looking for flexibility. Again this includes the option to redeem the loan early without penalty if the property is sold, the option of drawing on capital gain and releasing equity within the property to free up funds for further investment, helping them to build their commercial property portfolio. All of these options are becoming more and more popular with experienced investors. Another feature commercial investors are looking for nowadays is the flexibility to repay varying amounts of the loan, or even to take a complete capital holiday, sometimes for the duration of the loan.

The type of commercial investor best suited to a flexible mortgage is one who is confident juggling their cash flow. Like the loan, investors have to be flexible to best suit the arrangement. If investors want to have the loan fully repaid within a structured timeframe then they will be much better suited to a more traditional and rigid mortgage, with a fixed monthly repayment over a fixed term.