Commercial Mortgage Amortization
“Commercial Mortgage Amortization Can Have A Significant Impact On Cash Flow”
Commercial mortgage amortization can in many cases make or break your cash flow.
Which is why in many situations amortization can even be more important that the interest rate being charged, at least in the short term.
For instance, if you can get a great rate from a commercial mortgage lender but only receive a fifteen year amortization, which is not all the uncommon with commercial property financing, the drain on your cash flow can be considerable.
With commercial mortgage financing in general, there are longer amortization terms available, but this is going to depend on the mortgage lender and the property type.
And sometimes the best commercial mortgage rates are tied to shorter amortization periods due to the fact that the lender is wanting to get capital back as quickly as possible to lower their risk and strengthen their security position.
Sometimes the challenge of a shorter amortization period is only going to be an issue for a few years. This can be a common occurrence with newer companies that are trying to get into their first owned space or established companies that are in a growth mode, want to conserve capital, but also want to acquire commercial property for space and cash flow saving on rent or a host of other reasons.
In these types of situations where the borrower is confident that tight cash flow for debt servicing is only short term in nature, sometimes it actually can make good sense to get a private mortgage on the commercial property even if you qualify for a bank or institutional commercial property loan.
The reason for this strategy is that private lenders typically charge interest only for debt service which eliminates the principal repayment amount from the monthly mortgage payment.
Yes, by doing this you are not paying the mortgage down in the short term, but it is allowing you to acquire or refinance a commercial building and manage the debt servicing requirements with the present level of cash flow that exists.
And while most private mortgages are only for a period of one year, it is possible to get a two year term or perhaps an option to renew after one year. You may also be able to negotiate favorable prepayment privileges as well so when the time comes that you are in a position to refinance with a bank or institutional lender, you can pay out the mortgage without any added costs being incurred.
The other option of trying to get a longer amortization period with an acceptable rate is to start the process for locating and securing a commercial mortgage sooner. The time it can take to get a property financing commitment in your hand can be considerable so starting early will increase your chances of success.
Another thing to consider is working with a commercial mortgage broker who can help you zero in on commercial programs and options that you may not have been able to find on your own with the time you have to work with.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel