Types of Commercial Mortgages

Commercial Mortgages: Fixed or Adjustable?
Like home loans, there are a variety of commercial mortgages to choose from. If you want a simple and predictable monthly payment, consider a Fixed Rate Mortgage, where the interest rate and monthly payment remain the same for the life of the loan. If, however, you’re open to the risk of a variable rate, consider an Adjustable Rate Mortgage, where the interest rate (as well as your monthly payment) can rise or fall according to current market trends. Now, let’s examine other types of commercial mortgage loans.

Commercial Mortgage as a Bridge Loan
A commercial mortgage can also act as a bridge loan. A bridge loan helps borrowers finance projects until they get off the ground, and/or until they can receive longer-term financing. For example, let’s suppose a developer takes out a short-term commercial bridge loan to build a strip mall. After a year and a half, the strip mall is complete, all stores are occupied, and the shops are thriving. A bridge loan gives the developer enough money to set up the business, prove it to be profitable, and then receive long-term financing.

Commercial bridge loans have short terms and typically no prepayment penalty, making them perfect for developers who purchase properties and quickly improve them with the loan proceeds. For example, a developer might use a commercial bridge loan to acquire a worn down empty apartment building. Once the developer renovates the building and finds tenants, he or she can then sell the property to see an immediate profit.

Commercial Equity Loan
Homeowners often use a home equity loan or line of credit to turn their home equity into cash to pay for home improvements or everyday living expenses. Similarly, business owners can tap into the equity they’ve built in their existing commercial property by taking out a second commercial mortgage or a commercial equity loan. By doing this, the business owner can use the extra cash for business equipment, or for property expansion or renovations. Commercial equity loans have fewer fees and relatively low interest rates as compared to consumer loans.

If you want to renovate your commercial property with a commercial equity loan, you must pass a "Profit Test." A Profit Test determines whether, after renovations, the finished product is worth more than construction costs.

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