A commercial mortgage is generally classed as an unregulated facility for business users or for any type of business activity or investment. They are based on the strength of a business financially, the individuals involved in the business and the value of the property or asset being acquired. Commercial lenders will want to the business to demonstrate consistency and a trading track record within the business’s marketplace together with decent profits in the company’s management and filed accounts to show commercial affordability to make monthly repayments. Commercial mortgage interest is higher than a residential mortgage as the facility presents greater financial exposure to the lender and is dependent on the performance and long-term viability of the business.
Interest is however usually lower when compared to a standard business loan. Commercial mortgages are generally higher in value as commercial property is usually bigger than residential and as the risk is greater to the lender they require a larger deposit from the applicant business or owner, this is generally a minimum of 30% of the purchase price or lenders valuation.
A residential mortgage on the other hand is a regulated facility used for private property purchases that is likely to be your main residence and is based on the individual’s income, outgoings and affordability to make monthly repayments in addition to the value and condition of property. Interest rates are lower than a commercial mortgage and the rate of interest is based on the deposit which is normally between 10-20% of the property value and the applicant’s personal financial circumstances and credit history.