Commercial Mortgages Costs and Repayments

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Commercial Mortgages Costs and Repayments

As commercial mortgages are considered higher risk than residential loans, interest rates tend to be higher. The term of the loan will also usually be less than the typical 25 year residential mortgage.

Rates are generally between 1% and 7% above the Bank of England base rate and can either be fixed or variable. Variable rates usually change in line with the Bank of England base rate, while remaining a few percent higher. With a fixed rate mortgage, repayments will remain the same for a set period - generally 2 to 5 years and will usually be higher than the variable rate.

Like residential mortgages, most lenders offer commercial mortgages on either a repayment or interest-only repayment basis. Interest-only mortgages tend to be cheaper but are usually higher risk as a separate investment product will be needed to cover the capital loan.

In addition to interest, various other costs may need to be taken into account such as legal and professional fees and a valuation fee (a full structural survey may be required). Some providers charge an arrangement or processing fee for setting the mortgage up of around 0.5% to 1.5% of the loan. Redemption penalties or early repayment penalties can also be charged if the mortgage is paid off early, usually within the first 5 years.

Often a minimum level will be set for the loan with most lenders setting their lower limit at £25,000 although a few offer a lower limit of £15,000 and depending on the size of the business, it may be possible to borrow as much as £2million. Some lenders are flexible when it comes to payment holidays, underpayments or late payments but taking up these options may incur additional costs.

For more information or if you would like specific advice about which provider can give you the best deal on a commercial mortgage, please complete a Mortgage Enquiry Form and we will arrange for one of our specialist mortgage advisers to contact you. Alternatively, you can call us on 0845 106 0505.