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Understanding Your Commercial Mortgage Better

Wednesday, June 23rd, 2010

The property is usually held up as collateral in a commercial mortgage. If the borrower fails to pay the amount owed on the mortgage, the property can be taken by the mortgage lender. This is typically the recourse taken by commercial lenders when there is a default on the payment.

There are many reasons for a commercial property loan such as expanding a business or developing land. Some businesses may use a commercial mortgage to pay down debt or increase the capital they need for the operation of the company. The properties used in a commercial mortgage include warehouses, offices and retail stores. There may be different terms used in a commercial mortgage than those used in a residential mortgage.

Commercial lenders will analyze the proposal to determine if the terms are appropriate for the lender. The borrower is examined to determine if they have the capability to repay the loan. The business as a whole is looked at by the lender to determine if the business has the capacity to earn the amount of the loan. A commercial lender is in business to earn money. When a business does not meet their criteria for lending, it is not in the best interest of the mortgage lender to lay out the money with a less than favorable probability of it being returned.

The value of the property is used to determine the loan amount on a commercial loan. The borrower is not considered in the credit, but instead the entire businesses credit is used to determine the worthiness of the borrower. Commercial loans differ from residential mortgages in that it is much easier to recover a commercial property in the case of bankruptcy than it is a residential property.

Commercial mortgages are designed to benefit the borrower and the lender. Both parties are interested in making money on the transaction. The lender is making money on the amount of money that they can reasonably lend to businesses and businesses can expand and increase their profit. Both parties take a risk in the transaction, but the rewards make the deal much more palatable for lenders and borrowers in commercial loan transactions.

Equity Loans on Rental Property

Thursday, February 4th, 2010

Equity loans on rental property is another possibility of this astonishing and diverse instrument but specifically, can it help you in your situation right now? Absolutely, but certain conditions must apply in order for this to be a fruitful transaction otherwise, it may be considered too risky.

Perhaps, one of the most noteworthy aspects of the home equity loan on rental property is the possibility to improve on the actual property itself! Under these circumstances, you can see it’s real potential to increase the properties equity overall and to possibly even raise the rents!

The true key is to be able to either raise rents before the note is taken out and the renters are well aware of an increase, or set them at a certain level assuming they are vacant. Either way, this can pay for the excess cost that the equity loan charges you for and even put money in your pocket in the meantime!

Some of the potential downside characteristics are that the rates may be a little higher than regular home equity loans, but many are marginally more at worst! Moreover, if you don’t utilize the note for improvements on the structure: you could be ‘hanging yourself out to dry’, and causing negative potential consequences, assuming your income is lower than your overhead, including the loan.

Some other conditions to consider is that some lenders require that you actually live in the building before approving the loan. Furthermore, if you default on the loan (which you shouldn’t do), you could expose yourself to tenant litigation due to the bank foreclosing on a place in which they currently live.

Nonetheless, it’s simple math, do you have enough funds to cover this additional expense and what are your direct intentions for the money? If you can logically verify this information, and deem it to be a legitimately sound transaction, you then should obtain the equity loan to ultimately benefit your financial state.

Finally, if you choose wisely, there are very few loans out there that can be as powerful to the borrower, so take advantage of the rates, while they are still very low!

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