For new businesses, commercial real estate loans are available.
What is the Definition of a Commercial Real Estate Loan?
A commercial real estate loan, unlike a residential real estate loan, is a mortgage-backed by a lien on commercial property. Commercial real estate (CRE) is any income-producing real estate utilized for commercial purposes, such as offices, shops, hotels, and apartments.
Repayment Schedules for commercial real estate loans :
A home mortgage is a form of amortized loan in which the debt is paid off over time in regular installments. The 30-year fixed-rate mortgage is the most common residential mortgage product. Residential purchasers, on the other hand, have additional options, such as 25-year and 15-year mortgages. Longer amortization durations are associated with lower monthly payments and higher overall interest expenses throughout the loan’s life. While shorter amortization durations usually mean higher monthly payments and lower overall interest costs, longer amortization periods usually mean higher monthly payments and lower total interest costs.
Unlike residential loans, commercial loans generally have durations ranging from five years (or less) to twenty years, with an amortization period that is often greater than the loan term. For instance, a lender might make a commercial loan with a seven-year term and a 30-year amortization period. In this example, the investor would make seven years of payments based on a 30-year loan term, followed by a final “balloon” payment of the whole loan balance.
The interest rate a lender charges is influenced by the loan duration and amortization time. These parameters may be negotiated based on the creditworthiness of the investor. The greater the interest rate, the longer the loan payback period is.
Interest Rates and Charges on Commercial Real Estate Loans
Commercial loan interest rates are often higher than residential loan interest rates. In addition, commercial real estate loans typically include costs such as appraisal, legal, loan application, loan origination, and/or survey fees, which contribute to the overall cost of the loan. Some fees must be paid in full before a loan may be authorized (or denied), while others must be paid on a yearly basis. A 1% one-time loan origination charge, for example, may be payable at the time o
