Commercial Interest Rates

Commercial Mortgage - Interest Rates & Repayment Options

Most financial institutions offer borrowers a variety of mortgage repayment options.

Repayment Methods: 

Repayment Mortgage: regular repayments of capital and interest throughout the mortgage term so that the debt is paid off in full by the end of the mortgage term;
Interest Only Mortgage: interest payments throughout the mortgage term with the borrower making some other arrangement to repay the capital at the end of the mortgage term;
Repayment Mortgage with Balloon Payment: interest payments throughout the mortgage term with partial repayment of capital; the outstanding capital balance (the balloon payment) has to be paid at the end of the mortgage term.

Interest Rates: 

• Fixed Rate: mortgage rate unchanged for a fixed period (often 5 years);
• Standard Variable Rate (SVR): mortgage rate linked to Bank of England Base Rate or London Inter Bank Offer Rate (LIBOR);
• Capped Rate: variable mortgage rate that cannot go above an agreed maximum, for a fixed period (usually 2 years).

Because business requirements change constantly, many holders of commercial mortgages reappraise their mortgage arrangements on a regular basis. If the business is prospering, the borrower may well find that mortgage finance is available at a lower rate of interest from an alternative lender.

Commercial Properties with Living Accommodation

Commercial mortgages are available for the purchase of business properties that incorporate living accommodation, such as shops, guest houses and B&Bs. If the living accommodation covers more than 40 percent of the property’s floor area and is occupied by the mortgage holder, the terms of the mortgage are subject to regulation by the FSA. 

In reality, the main consequence of being subject to this regulation is that you might find yourself having to convince HM Revenue & Customs that you really are running a business and not just using business premises as a private residence.

Summary

• Lenders offer repayment and interest only commercial mortgage options
• Fixed rate, standard variable rate and capped rate commercial mortgages are available
• Mortgages for some commercial properties with living accommodation are regulated by the Financial Conduct AuthorityFCA