January 23rd, 2014. Ben Lloyd
Why Choose an Interest Only Commercial Mortgage?
When it comes to mortgages, there isn’t a one size fits all solution. Some businesses will benefit more from repayment while others will prefer interest only commercial mortgages. There are pros and cons to every type of mortgage, here’s everything you need to know about choosing interest only.
Due to the nature of this type of mortgage, you will be paying much less back every month than you would with a repayment option. The idea of this is that with lower repayments, more money will be available allowing you to be able to put enough aside to pay off the amount owed at the end of term.
Potential for Misuse
Interest only mortgages have been bashed in the news lately, because people misused the loan and neglected to save for the long term. This is something that can happen to businesses just as easily as it could with individuals. You need to understand that you’re only paying off the interest rates and not the mortgage itself.
Ideal for Long Sales or Lump Incomes
If you know that your business will be bringing in a lump sum of money either through the sale of another property or by closing a large deal, then the interest only could be the perfect solution. You’ll generally have much lower repayments over the loan period and could repay the loan at a much lower cost in a much faster time than repayments.
Typically repayment mortgages will charge you extra if you repay early, or only allow you to pay up to 10% of the mortgage value early each year without cost. However, if can’t afford to keep up with the regular repayments then you could wind up in trouble with the lender.
With interest only commercial mortgages you can pay more when you have the money and less when you don’t – making it perfect for businesses with seasonal income.
Perfect for Property Development
Anybody who’s planning on buying a commercial property for development would want to consider interest only. The lower repayments mean that you won’t be eating into the costs of your renovations, giving you more cash to play around with.
You managed to buy the property at a low cost and plan on selling it on for more, this is ideal because you can sell the property for more than it was bought for. This means that you just have to repay the bank loan and keep the rest of the profits.
A mortgage should be completely tailored to the borrower’s needs, making sure that you are able to meet the repayments without forcing your business to suffer from debt.
Article By Ben Lloyd
January 23rd, 2014
Ben is the Director and Co-Founder of the Pure Group and Managing Director of Pure Property Finance.
Following a career in Barclays, where Ben was in the real estate finance team for 8 years, he decided that the market needed a more forward-thinking type of commercial brokerage so founded Pure Commercial Finance (now Pure Property Finance), the first company within the Pure Group.
Ben has extensive experience across the real estate sector and has participated in over £2bn of real estate transactions during the course of his career.
Ben oversees the general strategy at Pure Group and works with the senior leadership team to drive the Group forward. Ben is also on the Executive Committee of FIBA.See more articles by Ben