Money can be generated from money. Based on this principle, commercial mortgage lenders advance cash and retain a building or real estate as collateral. There is little difference between a normal mortgage and a commercial mortgage. In a residential mortgage the residential building is the collateral. In a commercial mortgage the collateral is a commercial building or real estate zoned for commercial use. The borrower is a business which may be a corporation, a partnership or a limited liability company. The creditworthiness of the business is always determined before a loan is approved.Usually, in any mortgage the money due to the borrower can only be secured by the collateral. If there is further deficiency in payment it is not possible to claim additional amounts through other channels. In the event of default, the lender will likely opt to take possession of the collateral to reclaim his funds.Commercial mortgage loans are employed for various reasons. They are used to acquire land or commercial property, to developing present businesses, and to refinance debts that have been accrued in the normal course of business. Commercial properties are acquired for offices, warehouses, retail businesses and a variety of other uses. Commercial mortgages have many different terms for repayment. If the payments are not made the property pledged as collateral is at risk.There are many banks and mortgage lenders that are eager to extend commercial mortgages provided the deal makes sense. They work within a framework of stringent conditions. One of the criteria that will be evaluated is the debt servicing capacity of the borrower. They also look into the viability of the business and its future prospects of income generation. The mortgage is a money making venture and the lenders will ask for a initial cash investment to somewhat mitigate the risk of the transaction.The amount you can receive for a commercial mortgage is based on the value of the property that is being mortgaged. The personal credit worthiness of the individual borrower is typically not considered in this type of loan. In the case of bankruptcy, there are numerous legal hurdles to make it difficult for the lender to seize a residential property. In commercial mortgages the law makes it far easier to recover the debt by selling the commercial property.Compared to residential mortgage loans the interest rates for commercial mortgages are consistently higher. A fixed rate of interest is usual in a commercial mortgage and the period of the loan is usually between three to ten years. Sometimes banks will consider a second mortgage in addition to a first mortgage. However, the interest rates will be higher than those of first loans.The lender as well as the borrower is out to make money from a commercial loan. The lender is looking for avenues to invest his money through viable projects and the borrower is looking for viable loans that will further his or her business. The relationship between lender and borrower is truly symbiotic. Both gain from success, and both share in the risk in case of failure. Thriving businesses around the world owe their success in some part to the successful use of commercial mortgages.
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