Understanding Commercial Remortgages

Getting a commercial mortgages is a good way for a business to grow and improve their assets. However, it is also possible to commercially remortgage, known to some as refinancing. In this process, a business can replace their existing mortgage with a new option, in the same way as they would remortgage a normal personal mortgage. As with personal mortgages, the property can be used as security for the remortgaging process.

 

Why Should You Remortgage a Commercial Property?

There are a number of reasons why businesses choose to remortgage a commercial property.

Remortgaging allows a company to release any equity which has been accumulated during the mortgage term. The equity which a company gains can be used to then pay off any existing debt, or for the purpose of investing in a new property.Businesses will often remortgage for the purpose of borrowing against the new valuation of a property once it has increased in value over time.Remortgaging can help with getting a better deal from other providers. The terms of a commercial property deal can change over time, and they may be more favourable now than years prior. Lots of businesses remortgage for a better rate.If a business is looking to make the transition from owner-occupier to a commercial landlord mortgage, then remortgaging is the way forward. It also allows for the existing property to be kept and another to be purchased.

What are the Pros and Cons of a Commercial Remortgage?

There are pros and cons to a commercial remortgages. It’s important to understand what your options are and what you need to consider before you make a decision.

The Pros

A commercial remortgage is a good way to get access to working capital, as you will be switching to a lower interest rate, and you will probably cut down on monthly payments.The extra cash that you have available as the result of the new deal can be used for either acquisition, renovation, refurbishment, or financing a new business deal.You could also use the funding for new equipment or paying staff a better wage.

The Cons

It’s possible that your current provider will charge you an exit fee as a result of terminating your current mortgage contract early.You may also have to pay both booking and arrangement fees. A new deal can also take time to work out, which may delay certain business activities you want to complete.

How to Remortgage a Commercial Property

So, a typical commercial mortgage is offered at a lower rate than the other types of loan you can get. Furthermore, because the loan is secured against the value of your property, you are free to invest the equity that you get however you want, so it’s quite good for people who want to diversify.

Generally speaking, if you want to qualify for a remortgage, then there are a number of different criteria that you will be judged against in order to determine your eligibility.

First of all, if you have built up a large amount of equity in the property up until now, then you will be seen as a lower risk remortgage by most lenders. This means you will get a lower loan-to-value rate. This is good because it means that you won’t need a deposit in most cases.

The vast majority of lenders will want to see a clean credit history.

You could easily get refused for a loan if they feel that your credit history makes you too much of a risk. The best way to get around this is to offer a personal guarantee or more security on the loan to reassure creditors that you will be safe.

Finally, one of the best ways to remortgage a commercial property is to have a strong record in your line of business. If you’ve been operating for a long time, and you have evidence of your success as a company, then you have a much higher chance of getting your remortgage. If you have proven assets and good projected income, then you’re a safe bet for a lender. Ultimately, if a mortgage lender has that reassurance, they are far more likely to accept you.