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What differences are there with commercial mortgages?

by | Jan 4, 2016 | Commercial Real Estate

If you’re considering a commercial mortgage in Fort Collins, Colorado, but you’re only familiar with the way that a residential mortgage works, you’ll be glad to know that both loans are quite similar. You can even get them from the same lenders. That said, there are a handful of key differences that you’ll want to note.

For one thing, the commercial mortgage can’t be used on any land or building that is not in an area that has been zoned for commercial use. Be sure you check very carefully, as the local governments decide how the zones are split up. Some areas are zoned for both commercial and residential use, but you can’t buy property in a residential area and use it for commercial purposes in most cases.

Another thing to note is that balloon payments are more common. These keep the payments low at the beginning and then put one large payment a few years down the road, when the mortgage is then entirely paid off.

The idea here is that the business needs to have low payments at the beginning so that money can be invested into getting things up and running. Then, when the company starts making money, that money can be used to pay off the remainder. These are also sometimes used for homes—and standard payment systems can also be used for commercial properties—but balloons just show up more in the corporate world.

Finally, a commercial mortgage may be a nonrecourse mortgage. Basically, this means that the only thing the lender can take if the borrower does not pay is the property that was bought, not any of the company’s other assets.

Source: Nerd Wallet, “What Is A Commercial Mortgage?,” Anisha Sekar, accessed Jan. 04, 2016

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