Posted on February 10, 2010.
Business owners should consider the new 30 year fixed commercial mortgage Business owners who own their commercial property needs to take a critical look at the new trade agenda set 30 years that have become available. It has some characteristics that distinguish it from typical 5-year fixed rate, 20 years amortization loan.
Firstly, as its name suggests, this loan, as the traditional 30 years of permanent residence is fully amortized over 30 years and the rate is fixed throughout the term. In addition the program is designed for users of the owner (companies that have the facilities they operate out of) and is suitable for a wide range of building types, not just the typical office, industrial, retail . Properties such as automobiles, restaurants, nurseries, etc. are acceptable.
Besides the obvious advantage of not having to worry about a rate adjustment or pending balloon, the cash savings can be significant for a small company trying to reduce monthly costs. On average, we see a 20% cash flow compared to a loan amortization of 20 years.
To be fair, the reduction in payment is due more to the spread of the loan, real savings, but many companies are most affected, especially in our struggling economy, keep their monthly expenses down and cash flow up. Other benefits include the ability to pay the mortgage down 20% per year without incurring a penalty for early repayment and the rates / fees are perfectly in line with traditional loans.
How and why have not you heard of advertising 30 years fixed before?
Two reasons. The evolution of secondary market trading is one of the sources behind the loan program (and others). Historically, banks and financed primarily by loans with their own money, mostly deposits. They were (and still are) at direct risk of losing the principal if the borrower defaults.
The secondary market is different from the traditional system. Loans are more "pooling" together and sold to investors as bonds, creating a more diversified and less risk for the entities holding the loans. This diversification is one of the fundamental differences that allow major donors to create and support loans outside the norm.
What are the negatives?
Soon. Prepayment penalties are higher than traditional loans. Most banks ask for 5,4,3,2,1% while the loan may have a duty of 5% for five years or more than 10% for five years, as indicated. Interest rates are generally 1 -, 4% higher than traditional programs, but the increase in depreciation, as indicated above, normally increase the liquidity of 20%.
