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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 4th December 2020*

Customers frequently get in touch with us to enquire about mortgage terms for commercial property. Some of them ask how long they typically are, while others want to know how the term length will affect the overall cost and the rates they would get.

We’ve put together this comprehensive guide commercial mortgage terms and you’ll find the following topics covered in detail below…

For more information about commercial mortgages and how they work, consult our in-depth guide to commercial mortgages or make an enquiry to speak to a commercial mortgage broker.

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How long are typical commercial mortgage terms?

Commercial mortgages are typically offered with a term length of between three and 25 years, although some lenders will go as high as 30 years. Anything less than three years would be considered a commercial bridging loan – you can read more about them in our guide to commercial bridging finance.

How do commercial mortgage terms differ from residential?

A wider range of mortgage terms are typically available. Most residential mortgages range between 25 and 35 years, while commercial mortgage can be offered with terms as short as three years, as stated above.

Are there fixed commercial mortgage loans?

Yes, it is possible to get a fixed rate commercial mortgage. Variable rate deals were once more common for business property but this is no longer the case in the current market.

Commercial lenders who provide fixed rate commercial mortgages usually offer their discounted rate for anything between two years and the duration of the term. If the discounted rate is time-limited, you would be switched to the provider’s standard variable rate after that, unless you refinance your commercial mortgage.

Does term length affect commercial mortgage rates?

In a word, no. The term length is not usually a factor the lender takes into account when deciding which interest rates to offer, so long term commercial mortgages typically come with the same rates as shorter-term deals, determined on a case-by-case basis.

So the rates you’d get on a 10 year fixed rate commercial mortgage or a 15 year fixed rate commercial mortgage are essentially the same as what you would get on a 30 year commercial mortgage when applying under the same circumstances.

The only aspect of term length that has any bearing on interest rates is the length of the lender’s introductory rates period on a fixed rate mortgage. The longer you’re on the discounted rate, the less you will pay in interest overall.

Getting the best rates on commercial mortgages

Whether you’re looking for a long or shorter-term commercial mortgage, the key to getting the best rates is meeting the eligibility and affordability criteria at as many lenders as possible and having access to the entire market, so all of the best deals you qualify for are within reach.

Commercial mortgages are offered on an unregulated basis, so much of the lending criteria isn’t set in stone, but lenders tend to offer the best rates to customers with the following…

  • Profitability: To determine whether the loan is affordable and serviceable, most lenders will carry out an assessment of a business’s earnings before interest, tax, depreciation and amortisation (EBITDA).
    There’s no specific amount of profit you’ll need to qualify, but the more confident the lender is that the business has enough capital to afford the mortgage, the more likely they are to offer favourable rates.
  • A healthy deposit/good security: Commercial mortgages usually require a deposit of between 20-40% but if you’re in a position to put down more or put up extra security, this can help minimise any risk involved and convince the lender to offer you a lower interest rate and a higher loan to value (LTV) ratio.
  • Experience in property: Although there are specialist commercial lenders who offer mortgages to first-time investors and start-ups, having a strong track record in the relevant industry usually helps convince the lender you’re low risk.
  • Clean credit: There are specialist bad credit lenders for commercial mortgages, including ones who can take a flexible approach to severe types of adverse, but having a clean credit rating will usually help convince the lender you’re low risk.

How does term length affect the overall cost of a commercial mortgage?

The length of your commercial mortgage term will have an impact on the overall cost of a commercial mortgage – if you take a loan out over a longer period, there will be more monthly instalments and therefore more interest to pay across the term.

The table below reveals how the monthly payments can differ on a £400,000 commercial repayment mortgage with an interest rate of 4%, based on the length of the term.

Product Monthly Payment Overall Cost
5 year fixed rate commercial mortgage £7,367 £441,997
10 year fixed rate commercial mortgage £4,050 £485,977
15 year fixed rate commercial mortgage £2,959 £532,575
20 year fixed rate commercial mortgage £2,424 £581,741
25 year fixed rate commercial mortgage £2,111 £633,404
30 year fixed rate commercial mortgage £1,910 £687,478

As you can see from the table above, a commercial mortgage with a shorter term has higher monthly payments but a lower total cost, as you will be paying less interest overall.

Which term length you should choose depends entirely on what you and/or your business can afford to pay out each month. If you’re capable of meeting the higher monthly payments, there is money to be saved by reducing your mortgage term, but having lower monthly payments can free up capital that could be invested elsewhere.

You should also keep in mind that lower term lengths obviously come with more stringent affordability requirements, which means your choice of lenders will be fewer.

If you’re unsure which term length is the best fit for your needs and circumstances, get in touch and the advisors we work with will help you choose the right product.

Speak to a commercial mortgages expert

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry online.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 4th December 2020
OnlineMortgageAdvisor 2021 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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