Types of Commercial Loan

A commercial mortgage is usually secured against a business asset. This can be assets you already own, or it can be the property for which the mortgage is required.

The loan will typically be for a maximum of 80 percent of the value of the property. You’ll need to fund the rest through other means. One of the most important aspects of a mortgage is to consider the type of interest charged and the way your business repays the loan.

There are three interest rate options:

Variable interest
The interest rate varies as the Bank of England adjusts the bank base rate. With this type of mortgage you cannot know for certain of how much you’ll pay in future, but when interest rates are on a downward trend you will benefit from lower repayments. Interest is charged as a percentage over and above the bank base rate.

Fixed rate
The interest rate remains fixed for a set period. This period can be for the life of the mortgage, or it can be for a fixed period of time. If it is fixed for a period of time, the mortgage will revert to the variable rate at the end of the fixed term. This type of mortgage provides certainty on the amount paid during the fixed rate period and they can be a good bet if you expect interest rates to rise. However, if interest rates fall during the fixed term you won’t benefit. The interest is charged as a percentage above the bank base rate and this will be higher than the rate charged for a variable mortgage.

Managed rate
This allows your rate of interest to rise and fall within a permitted band. Thus you have some of the benefits (and costs) of interest rate changes, as they do provide some degree of certainty over how much you’ll pay within the permitted band. The additional set up fee is usually higher on this type of mortgage.