What’s the Difference Between Commercial Mortgages and Residential Mortgages?

If you’re a business owner and a homeowner and you’re about to get a commercial mortgage for the first time, you might think that the process will be much the same as it was getting your home loan. However, thinking like that can lead to a lot of frustration when you eventually find out that there’s much more work and time involved with commercial mortgages.

The amount of paperwork and documentation that you will need is one of the first, and biggest, differences that you’ll notice with a commercial mortgage. Instead of only needing to verify your financial standing and the cost of the home as with a residential mortgage, paperwork that comes with a commercial mortgage includes, but is not limited to: operating costs of the business, financial plan, credit reports of all owners and partners, all personal income of all owners and partners, location documents, feasibility of the business, the impacts of the business on the environment, and the forecasted income and profits of the business.

Another thing you’ll need with a commercial mortgage is an appraisal of the property. This is something that’s not necessary with residential mortgages, unless the homeowner is refinancing or obtaining a second mortgage. Some commercial lenders will accept an environmental assessment report in place of an appraisal, but it’s best for business owners to be prepared to pay appraisal costs, just in case.

One more fee that business owners are often surprised by when applying for a commercial mortgage is the commission fee paid to the mortgage broker. While lenders of residential mortgages pay the broker their commission, this isn’t usually the case in commercial mortgages. Also because brokers play a much larger role in commercial mortgages, the business owner typically has even less direct involvement with the lender.

Amortization periods are also generally much shorter in commercial mortgages than they are in residential loans, and that’s another huge difference that business owners usually notice right away. While amortizations on residential mortgages can be as long as 30 years in Canada, commercial lenders generally aren’t that lenient and that length can be shortened by half, if not more, on commercial mortgages.

Commercial mortgages differ greatly from residential mortgages, both in the application process and how they’re ultimately set up. It’s important for business owners to know those differences before they apply so they’re fully prepared and save themselves as much time and money as possible.


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