Expert broker, Andy Elley, explains how and why commercial mortgage terms are usually shorter than the mortgages offered to home-buyers.
It’s very common for home-buyers to get a mortgage for 25-30 years but if you need a commercial mortgage you will, mostly likely, be offered a much shorter term – typically just 5-10 years.
Commercial lenders, offer what are known in the mortgage industry, as committed facilities. This means that they will offer you a mortgage term of say, five years but calculate the monthly loan repayments based on a longer term mortgage of up to 25 years. A longer repayment profile means lower monthly repayments which is better for cashflow and helps you meet the lender’s debt service cover requirements, i.e. how much cash you have to pay the debt.
We often come across borrowers who are unaware that their commercial mortgages were provided with a commitment period and get a nasty surprise when the lender requests repayment for the outstanding amount!
But don’t panic! Whilst technically speaking, full repayment may be due, it usually just means that it’s time to refinance, either with the same lender or elsewhere.
If your commitment facility is approaching its end, now is the time to consider and review your financing arrangements. That’s where we come in!
We can look at your existing deal and, depending on your circumstances, steer you towards an appropriate solution.
Advantages of refinancing with the same commercial mortgage lender
Whilst every commercial mortgage deal is negotiated on its own merits, the main advantages of sticking with the same lender usually include:
- Reduced lender arrangement fee – you might find that your lender will offer you new terms with a lesser arrangement fee. Often, we are able to negotiate deals without this fee!
- They might not require another valuation - Depending on the age of the latest business/property valuation held, your lender may also be happy to let you refinance without the need for a new one.
- No legal or security fees - at the very least there will be no legal and security fees to pay as the security is already in place.
- Less time and hassle – because the lender already knows about you and the property, the administration time required to get the deal done, is usually much quicker.
Advantages of refinancing with a new commercial mortgage lender
Even if, ultimately, you decide to stick with your current lender, you have nothing to lose by asking us to find out if we can get you a better deal including:
- Better terms – which lender’s borrowing criteria best suits your requirements? Don’t assume that your current lender is best. They may have updated their policies since you first took out a mortgage with them and you could find that they no longer have the same lending appetite for the sector your business operates in as before.
- Save money in the long run – despite the upfront fees and charges associated with taking out finance with a different lender, you might find that, in the long run, you actually save money. We’ll do the maths and present you with the various options so that you can take an informed decision.
If you (or your company) have a committed facility that is due to expire in the near future and you would like to discuss your refinancing options, please feel free to contact me directly on 01732 471644 or firstname.lastname@example.org. Remember, we do not charge for initial advice, so get dialling!
2nd October 2017