It is well-known to all that commercial real estate (CRE) is nothing short of income-producing property which is solely used for business in addition to residential purposes. It is also important to note that some other examples include shopping centres, retail malls, office buildings, and even complexes and hotels. Everybody dreams of having a commercial real estate. And thus commercial real estate loans are being provided so as to facilitate people to buy commercial properties at affordable interest rates.
In fact, financing is the development, acquisition and even construction of these kinds of properties and is typically managed through commercial real estate loans. There is nothing to worry as mortgages secured by liens on the commercial property. Loans on commercial real estate are provided without any hassle. Private investors, pension funds and insurance companies among others give capital for commercial real estate.
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| Commercial Real Estate Loans |
How residential loan and commercial loan differ from each other:
There are various misconception surrounding commercial real estate loan and residential loan. It becomes imperative to understand that both these are different and they doffer in various ways. Here is the list of differences between the two:
Individuals versus Companies
Residential loans are made for individual borrowers while the commercial real estate loans are for corporations, limited partnerships, trusts and funds which are business entities. Such entities are usually formed just for the specific purpose of owning commercial real estate.
Easy Loan Repayment Schedules
The residential mortgage is a kind of an amortized loan which facilitates the repayment of debt in regular instalments over a period. In fact, the 30-year-rate mortgage is the best residential mortgage product. It is pertinent to mention here that residential buyers have various other options like the 15-year and 25-year mortgages. It is the longer amortization periods which usually consist of monthly payments on small and high total interest rates. It costs over the life of the loan.
Some terms of commercial loans
The best and brilliant residential loans make it even more lucrative. It ranges from 5 years or less to 20 years. In addition to this, the amortization period is usually longer, it is for 30 years. The lender can even go for a commercial loan for a period of 7 years; likewise, the investor can also make payments for 7 years. But it has to be followed by one final ‘balloon’ payment of the whole balance which remains on loan.
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| Commercial Real Estate Loans |
LTV or Loan to Value Ratio
LTV is yet another factor that differentiates a residential loan from a commercial loan. It is because borrowers with low and lower LTVs can easily qualify for even more favourable financing rates than those with those higher LTVs. This is the reason why they have more stakes in the property and it also involves less risk in the eyes of the lender.
What matters are interest rates and fees and credit history
The interest rates which are availed on commercial loans are normally on the higher side in comparison to loans on residential loans. In addition to it, commercial real estate loans, in general, involve fees which comprise and include the total cost of the loan, legal application, survey fees, loan origination among others. One thing should be kept in mind regarding that there are innumerable ways to grow and enhance the assets. But all you need to do is to read and know a lot about commercial real estate loans. Your personal credit history matters a lot and thus it should be taken into consideration as lenders seek such people who have a flourishing personal credit history. Lenders look for many different factors when considering you for approval.
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