Financing your property: differences between commercial and residential

Finding the right property for your business is only half of the battle; you also need to secure the right commercial property loan for it.

Most people are familiar with home loans and Mortgage Choice spokesperson Jessica Darnbrough says there are some similarities between residential and commercial loans.

“For instance, there are a wide variety of commercial property loans available and most work in much the same way as a residential home loan,” Ms Darnbrough says.

“As an investor you can choose from a variable rate, fixed rate, combination between variable and fixed rate, principal and interest or interest-only loan, often with useful features available like fee-free additional repayments or an offset facility.”

Ms Darnbrough says property owners could also choose a line of credit commercial mortgage.

“This gives you funding up to a predetermined limit and you only pay interest on the funds drawn down,” she says.

But according to Mortgage Choice, borrowers usually need a larger deposit to secure approval for a commercial mortgage.

Most lenders offer a maximum Loan to Valuation Ratio of 70%, which means buyers need a minimum deposit of 30% of the purchase price plus costs.

Ms Darnbrough says it is important to seek expert advice before making any financial decision.

“A broker will help you understand exactly what commercial loan type suits you and your needs both now and into the future,” she says.

“Furthermore, they will be able to give you an understanding of what you can afford to borrow and what your commercial mortgage repayments would be.”

* Mortgage Choice: AFSL 422854