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Reposted by: Leah Henderson Columbia, SC Realtor
Be forwarned - there are many fees and costs that come with a commercial second mortgage loan. You might not be able to avoid them, but at least knowing what to expect before you start negotiations will make it less surprising when it comes time to pay them.
For example, even though the stated interest rate from your selected commercial mortgage lenders, may be 9%, you still have to consider "points". If the lender assigns two points, then the actual interest rate will be 11%. not 9. This extra percent is intended to go straight into the hands of the lender, so it's certainly good to know upfront.
Some other fees are:
- Survey charges
- Legal fees
- Application fees
- Appraisal fees
- (... and anything charged against the loan, or must be paid ahead of time)
These costs can be quite significant, depending on the amount of the loan - and what's worse is the loan will usually not be evaluated for approval or denial until all fees have been paid. In other words, it is vitally important you are positive the loan will be approved before you pay for any of these.
Here are a few smart questions to ask your lender about commercial second mortgages:
- When the interest rates rise, will my interest rate go up as well?
- Are discounts available if I pay on time consistently?
- Is there a fixed rate option?
There are some commercial second mortgage lenders that will give lower interest rates if the mortgage is always paid on time. However, if you desire to pay the mortgage off ahead of time, then the lenders will usually make you pay greater interest through penalties.
Think carefully about how you think your business will be doing in a few years, and the way in which you will pay the loan back.
Although it is good to have a positive outlook about your business, you also need to have one that is realistic, since your business could be at stake if you fail to repay the commercial second mortgage in time. For many, the loans with the lowest interest rates are also the most risky for their business.
When searching for a commercial mortgage from a commercial mortgage lender who deals in equity loans, you should try to find one that will allow you to receive the loan within time constraints that are acceptable.
Borrowers need to keep banks and non-banks in mind when they are seeking the best loan to meet their needs. It is very important that the proper questions are asked, and that much research is done into various companies before making a decision.
Today, there are many more options for borrowers when it comes to a commercial second mortgage, as new lenders have sprung up to compete with banks to get borrowers lower interest rates and better terms as well.