The ABC Finance Commercial Mortgage Calculator
Our simple to use commercial mortgages calculator can be used to work out your monthly payments on both capital repayment and interest only basis.
Commercial mortgages are not usually priced using ‘off-the-shelf’ products like residential mortgages. Instead, lenders usually price applications according to risk. In this guide, we will give you information on likely interest rates, fees, and product features to allow you to input figures that are as accurate as possible.
Repayment Or Interest Only
Commercial mortgage lenders offer products on both an interest only and repayment basis. It is important to note that not all lenders will accept applications on an interest only basis. This means there could be a choice to make between the lowest interest rate, or the lowest monthly repayment on an interest only basis.
This calculator will show both figures, allowing you to work out the difference in monthly payments between the two.
Commercial Mortgage Rates
Interest rates vary between different lenders, however, we will provide as much clarity as possible below.
If you are taking out a commercial property mortgage for your trading premises, this is known as an owner-occupied commercial mortgages. When looking to buy commercial property as an investment, this is known as a commercial investment mortgage.
There is a difference in interest rates between the 2 products, with owner-occupied applications generally being slightly cheaper. For a strong owner occupied application, interest rates usually start at around 2.25%. Most owner-occupied applications will be priced between 2.75% and 7%.
A company with strong financial performance and clear credit history will usually be able to borrow at rates between 2.5% and 3.5%. Some lenders will want to push you to move your business banking to them and may increase the rate, or even refuse to lend if this is not agreed to.
Specialist lenders will charge slightly higher rates but do not push for your business banking. Generally, you can borrow up to 75% and they are happy to lend on interest only or repayment.
For commercial investment mortgages, interest rates will start at 3% for the strongest applications. Most applications will cost between 3.5% and 7%. The difference in cost will come down to the strength of the tenant, the length of the lease, credit history and lettings experience.
Shorter leases or ones with break clauses coming up in the first five years will usually see a slight hike in rate to bring likely interest rates between 4% and 7%.
Commercial mortgages are generally subject to the following fees:
Lender arrangement fee – The lender will charge this fee for arranging the loan. It is usually payable on completion and is often added to the loan, meaning you don’t have to make the payment out of your pocket upfront. Lender arrangement fees are usually between 0.75%-2.5%.
Some lenders will charge a commitment fee on acceptance of the formal mortgage offer. This is usually 0.25% and is deducted from the arrangement fee.
Valuation Fee – Commercial mortgage lenders insist that the property is valued by one of their panel valuers. Unlike a residential mortgage, the fee is not usually payable upfront. The fee is usually paid once an offer has been issued subject to valuation.
As commercial mortgage advisors we always give our clients the option of paying the valuation fee as late in the process as possible. This is to ensure everything else is agreed fully before you have to start paying out fees, minimising the risk of our clients wasting money.
Commercial valuations are more complex than their residential counterparts, meaning the fees are usually more expensive higher. As part of the service offered by us, we always quote the valuation fees upfront where possible to avoid any surprises further down the line. Best not to offer this, it can be a nightmare.
Broker Fee – Most brokers charge fees of 1% or more for arranging commercial mortgages. At ABC Finance, we don’t usually charge fees on applications above £200,000 if we are being paid by the lender.
We don’t charge upfront application fees and never charge any broker fees before completion of the loan.
Legal Fees – Commercial mortgage applications are more complex than residential mortgages and as such the legal fees tend to be higher. In addition to your own legal fees, commercial mortgage lenders usually require separate legal representation, which is paid for by the borrower.
Commercial Mortgage Term
Commercial mortgage lenders usually accept applications up to a maximum term of 20 years. As a result of repaying the debt over a shorter period than most residential mortgages, you will have higher monthly repayments. The flipside to this is that repaying a mortgage over a shorter term will reduce the total interest paid, meaning your mortgage costs you less in the long run.
Loan to Value
High street lenders are offering very competitive commercial mortgage rates up to 80% loan to value (LTV) for owner occupied applications. Commercial investment mortgages are available up to 75% LTV. If you are short on deposit we can look to raise the shortfall through other assets you may own such as property or machinery etc.
Applying For Commercial Mortgages
When applying for commercial mortgages, you usually have to provide the following:
- Certified financial accounts (for owner-occupied applications).
- Copy of the lease (for commercial investment mortgages).
- Asset & liability statement.
- Business & personal bank statements.
- Proof of identity, income & address.
Your application would follow this process:
- Talk to one of our commercial mortgage advisors who will take down details of what you’re looking for.
- Within 2 hours, we will email you a quote detailing the interest rate, fees, and headline borrowing terms, along with a list of whatever documents are required to submit a full application.
- As soon as we receive the documents from you, the application form will be completed. All documents are then assessed in house prior to submission and we will write a report on the application to ensure that the lender fully understands everything. Once submitted, we usually have an update for you in 24-48 hours.
- If the lender is happy with the application so far they may want to meet you to chat about your business and the subject property etc. and discuss the product they are offering. At this point, ABC Finance would arrange the meeting for you at a time and place convenient to you.
- Once comfortable, the lending manager will usually take your application to the credit committee. These are the underwriters who sign off the application as acceptable to the lender. Once approved, the lender will issue the formal offer, subject to valuation and legal work.
- Your formal offer will be issued.
- A surveyor is instructed to compile a valuation report on the property. It will be comprehensive and may take longer than a residential valuation to complete.
- Your solicitor is instructed to carry out the legal work and satisfy all conditions. They will run through the terms of the agreement and ensure you fully understand the loan. Once satisfied, you will sign the formal offer and return it to the lender. It is important that your solicitor is experienced in dealing with commercial mortgages as inexperience here can slow the process down significantly.
- Once all of this is done, the funds can be released and the loan completed.
To find out the exact terms available for your circumstances, talk to us and we’ll give you a full quote within 2 hours. Should you decide to proceed with the application, we will manage the whole process right through to completion for you. For more in-depth information on commercial mortgages click here to read The Complete Guide to Commercial Mortgages.