Advantages and Disadvantages of Commercial Mortgages
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Advantages and Disadvantages of Commercial Mortgages
Advantages:
- Retain Ownership:
Instead of raising funds by selling a share in the property or the business to an investor, you retain complete ownership. The lender is only entitled to an interest return on its mortgage, not a percentage of ownership that an investor would expect. Also they can only exercise the right if you default on payment. You retain all the benefits of ownership in an asset that has the potential to increase in value.
- Tax advantage
Interest payments on your mortgage are tax deductible and are made with pre-tax money.
- Better Cash Flow
A mortgage gives you access to capital that you would not normally have access to with minimal up-front payments and the flexibility to design a repayment plan that suits your needs.
- Simplified cash flow management
Mortgage schedules are pre-set, making cash management more predictable.
Disadvantages:
- Collateral
The nature of a mortgage requires you to pledge the purchased property to the lender. If you default on the mortgage, the lender is able to foreclose the property and sell it to repay the outstanding money owed to the lender. Make sure when the mortgage is repaid; the lender is obligated to release the mortgage and is required to make available any government files acknowledging this release.
- Defaults
The lender may define a variety of events that will constitute a default on the mortgage, including failure to make any payment on time, bankruptcy, insolvency and breaches of any obligations in the mortgage agreement. Try to negotiate an advanced written notice of any alleged default, with a reasonable amount of time to cure the default.
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