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Fixed Rate Commercial Mortgages

Key information you need to know about getting a fixed rate commercial mortgage

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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: 9th October 2019 *

In this article, you’ll learn more about how fixed rate commercial mortgages work, their pros and cons, and how to get the best deal on one.

If you’re looking to get a fixed-rate commercial mortgage, or would just like to get a little more advice to see if one’s right for you, then get in touch. We work with a range of experts who can take a look at your situation and help see what may be best for you.

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What are fixed rate commercial mortgages?

As may be obvious, fixed-rate mortgages for commercial property are a product that combines a commercial mortgage with a fixed interest rate. We’ll briefly explain what both of these things are.

Commercial mortgage

A commercial mortgage is not dissimilar to a residential mortgage, insofar as you have a property or piece of land that is used by your lender as collateral against your loan. 

However, unlike with a residential mortgage, you don’t have to use the funds for the property itself - you could use it for your business.

There are two main kinds of commercial mortgage; 

  1. Owner occupier: This is a mortgage for premises in which you plan to do business.
  2. Commercial investment: This is a mortgage in which you buy land or property with the intention to rent out to others. This also covers buy to let.

Fixed-rate mortgage

In a fixed-rate mortgage, the interest you pay is ‘fixed’, regardless of changes in the underlying base rate.  

Fixed-rate commercial mortgages are popular amongst businesses who want to know exactly how much their monthly payment will be each month, or amongst those who think that rates are due to rise.

Interest-only commercial mortgages vs capital repayment: a quick primer

There are two main ways to pay back a commercial mortgage - these are ‘interest-only' and ‘capital repayment;

Capital repayment

This is a straightforward means of payment in which your monthly payments cover the capital and the interest on your mortgage.

Interest-only repayments 

In an interest-only arrangement, you only pay the interest every month. You either pay the capital off in a lump-sum at the end of the mortgage term, or arrange separate payment for the capital through another kind of financing.

As is standard with interest-only arrangements, your lender will probably want proof that you’ll be able to pay off the capital at the end of your loan. 

What are typical fixed-rate commercial mortgage rates?

Like with other forms of mortgage, fixed commercial mortgage rates tend to move over time, in line with changes in the bank LIBOR rate.

However - a big point of difference is that the ‘risk premium’ is a lot more significant in commercial mortgages. As an example, a well-established supermarket may only expect to pay a few percent above the base rate, whereas a smaller company working on a higher risk sector could be looking at something closer to 7-9%. 

As such, commercial mortgage fixed interest rates depend largely on the lender’s perception of how risky your industry or business is. This is why it can pay to shop around to find a more understanding lender.

Where can I find a fixed rate commercial mortgage calculator?

Commercial mortgage affordability tends to have many more variables than residential mortgages, and due to this additional complexity, every lender tends to use a different method of calculating how much you can borrow and the likely repayment amounts. 

As such, it’s hard to find a calculator that you can rely on for anything more than a ‘ballpark’ figure. Speak to an expert if you’d like to get accurate figures for your business, based on your personal profile (or your business's profile).

The advisors we work with can also introduce you to the commercial lender whose calculator is most likely to return favourable results for somebody with your needs and circumstances. Make an enquiry to speak with one of them today.

Are there long term fixed rate commercial mortgages?

Sort of. It depends on how you define ‘long term’. 

Typically, the longest that a lender will commit to with a fixed-rate mortgage is 10 years - however, there are some rarer fixed-rate mortgages that can last for the entire term of the mortgage. These tend to be more expensive.

How do I get a good deal on a fixed rate commercial mortgage?

There are a few things you can do to get a better deal, or increase your odds of getting an offer. 

Have strong fundamentals and a good business plan

The acceptance criteria for commercial mortgages depends, largely, on the state of the business that’s asking for the finding. Your prospective lender will want to know that your business is profitable enough to pay the mortgage, even if business slumps. 

Knowing that, a good business plan, an experienced team and/or strong evidence of profitability will be important to any prospective lender that’s assessing your case. 

Consider your personal credit history  

As we mentioned above, the strength of your team (this includes you) is taken into account and, like with a residential mortgage, your personal credit will play a big part in this. Bad credit doesn’t have to be a dealbreaker, but good credit will definitely help.

Be willing to put down a sizeable deposit 

Though commercial mortgages tend to require larger deposits than residential mortgages, the same principle applies. 

That principle? The bigger the deposit that you can put down, the less of a risk a lender will see you. As a result - you’re more likely to get a great deal, everything else being equal. 

Be willing to put up some extra security

Another way to reduce the perceived risk of working with you is to put up some collateral - such as another property that you own. 

It goes without saying, however, not to put up anything that you can’t afford to lose.

Work with a specialist commercial mortgage broker

By scouring the entire market on your behalf, a specialist commercial mortgage broker (such as one of the fantastic experts that we work with) will be able to help you find the best fixed rate commercial mortgage rates.

Can I remortgage to a fixed rate commercial mortgage?

Yes, the advisors we work with have successfully arranged many fixed rate commercial remortgage deals.

Get in touch and one of the experts that we work with will take a look at your situation and see if this is possible for you.

Talk to a fixed rate commercial mortgage expert today

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

Then sit back and let us do all the hard work in finding the advisor 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: 9th October 2019
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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 info 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.