What is commercial remortgage?
Commercial remortgaging, or refinancing, is simply replacing your existing mortgage with a new one, much like remortgaging a residential mortgage. You will use the property as security.
Why remortgage my commercial property?
Commercial property owners choose to refinance for a number of reasons.
- to release equity that has built up during the course of your mortgage term. The equity can be used to pay off existing debts or invest in a new property
- if the property has increased in value, to borrow against its new valuation
- to access a better deal with another provider. As commercial property deal terms may have changed since you took out the original mortgage, chances are you'd be better off refinancing for more favourable rates
- to change from owner-occupier to commercial landlord, perhaps if you want to keep the existing property and purchase another one
Pros and cons of commercial remortgage
Commercial remortgage is a great way to access working capital by switching to a lower interest rate and reduce your monthly payments. The extra cash could be used to finance a new business deal or acquisition, refurbish or renovate an existing property, buy new equipment, pay off debts or invest in new equipment or hiring more staff.
However, your current provider may charge an exit fee for early repayment of your existing mortgage. There may also be arrangement or booking fees, while a new deal could also result in a longer repayment period . Your financial adviser will help you calculate the risks so you can make your decision.
How do I remortgage my commercial property?
Commercial mortgages are often offered at a lower rate than other types of loan. The loan is secured against your property to give you the flexibility to invest the equity released however you see fit.
To qualify for a commercial remortgage, the lender will need to assess your eligibility based on a number on a number of factors.
If you have built up a good deal of equity in your existing property, the lender will see this a lower risk as you will have a lower loan-to-value (LTV). You will not need a deposit as the LTV rate will suffice. Lenders will typically like to see an LTV rate of a minimum of 75%, although some lenders will not go higher than 60%. The lower the LTV, the higher your chances are of being accepted for a commercial remortgage.
Although most lenders would prefer to see a clean credit history, you could be refused if they see you as too much of a risk. However, there are some that can help investors with issues that have arisen. This could result in higher interest rates, so this is something to take into consideration before you make your application.
There are ways to combat any credit issues, such as offering more security on the loan, or a personal guarantee.
A stronger track record in your line of business will land you a higher chance of being accepted by a lender. It can depend on the type of industry, as some are deemed risker than others. It's important to speak to an experienced advisor to find the best deal.
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