The Difference between Commercial Mortgage and a Residential Mortgage.

Commercial and residential mortgages are two of the many kinds of mortgages a borrower often try to avail of. It is always a source of an argument which of the two is more viable to avail of.  People are thinking of which is easier to apply among both mortgages.  It is important to know the basic facts about this mortgage, so borrowers will have a guide, before deciding to avail either of the two mortgages.

Here are some basic differences of the two mortgages.

  1. In a Residential Mortgage it is usually between the borrower and a bank. With this kind of loan, the interest and the principal already has a fixed amortization every month, until the loan is fully paid. In this case, the lender will decide for the value of the lone thru the Loan to value ratio. (LTV). So, if the lender say’s the value of the loan should be  80 percent of the value of the property, they will take from the real estate value.  If the property is valued at 10,000,000 dollars, the amount for the loan is 8,000,000 dollars.  While in
  2. Commercial Mortgage, the deal is between the borrower and another company of businesses. For the best interest of the borrower, he will sign as a representative of a business entity.

Commercial Mortgage has a shorter term and there is a consistent amortization that has a bigger amount payable in the end of the term.  This gives the borrower more options to pay the balance, refinance or sell the property.  Commercial mortgage has a low loan to value ratio of 55% to 70%.   In this case, the borrower will be force to produce bigger cash out in the process. And lastly, the borrower will be asked to produce proof of income for the property and so with a plan for the property to generate income.

Commercial mortgage and commercial mortgage has the same common characteristics.  In both mortgages, the property will be taken as collateral by the bank.  It is for you if what mortgage will you avail.  But, consider your financial capacity to pay, before applying for either of the two mortgages.