Do commercial loans have same features as home loans?

Share your concerns & ideas about commercial property loans in Australia.
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mrtom
Posts: 48
Joined: Thu Jun 27, 2013 3:41 pm

Do commercial loans have same features as home loans?

Post by mrtom »

Hi home loan experts!

I was thinking about buying a commercial property. I had taken out a home loan in the past and I was able to get various features like an interest only period. I am not sure if commercial loans come with such features as well. I would be extremely grateful if someone could give me some information on the various features of commercial loans.

Thanks in advance!

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Otto Dargan
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Re: Do commercial loans have same features as home loans?

Post by Otto Dargan »

Hi and welcome to the forums mrtom.

Lenders offer commercial loans with different features so as to satisfy the needs of a diverse set of borrowers. Depending on whether you are a property developer, an importer, a retailer, or an investor, you may be able to find a suitable commercial loan for you.

You may be able to make interest only repayments with some lenders. You will need to provide a larger deposit and a strong cash flow to satisfy the lenders that you will be able to make larger repayments upon the expiry of the interest only period. You may be able to qualify for a:
  • 15 year interest only term: Some lenders offer a 15 year interest only term if you have a residential property as security.
  • 5 year interest only term: Some lenders may allow you to make interest only repayments for five years with commercial property as security.
  • 1 - 2 year interest only term: Most commercial loans have an interest only period of one to two years.
  • No interest only term: It may be easier for you to get approved for a commercial loan if you plan on making principal & interest repayments from the beginning of your loan term.
You may be able to capitalise the interest on a commercial loan. This means that you do not need to make repayments since the interest is added to the loan until it remains below a particular size or a percentage of the property value. You need to have a good exit strategy and significant equity in the property to qualify for interest capitalisation.

There can be flexibility in choosing a loan term that would meet your personal needs. You may get approved for a commercial loan with a:
  • 30 year term: You will need to have a residential property as security to be considered for a loan term of 30 years.
  • 20 - 25 year term: Select lenders may offer this loan term when you have a commercial property as security.
  • 15 year term: Most commercial loans have a loan term of 15 years.
  • 5 - 7 year term: If you are getting a loan for commercial equipment then you will typically have a loan term of five to seven years.
  • Shorter term: Short term business loans, invoice discounting and development loans generally have a shorter term.
Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

mrtom
Posts: 48
Joined: Thu Jun 27, 2013 3:41 pm

Re: Do commercial loans have same features as home loans?

Post by mrtom »

Hi Otto,

Thank you for the detailed information. I am really excited to know that I may be able to capitalise the interest on my commercial loan. However, I am not sure what interest capitalisation really means. Could you explain a bit about that as well?

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Otto Dargan
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Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Do commercial loans have same features as home loans?

Post by Otto Dargan »

Hi mrtom,

Lenders may have different policies on what they consider an acceptable exit strategy. They will consider your overall asset position, income, and retirement plans while determining the suitability of an exit strategy. Some of the common strategies are:
  • Downsizing to a smaller loan (not all lenders accept this strategy).
  • The sale of assets such as an investment property or shares.
  • Lump sum repayments from superannuation.
  • Ongoing income from superannuation.
If you would like to know more about these then you can check out our website. We can also be reached on 1300 889 743 or you can fill in our free assessment form to see if you qualify for a loan or not.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

mrtom
Posts: 48
Joined: Thu Jun 27, 2013 3:41 pm

Re: Do commercial loans have same features as home loans?

Post by mrtom »

Thank you for the prompt responses to my queries. I will call your office to discuss the options that may be available to me in detail.

umbrella
Posts: 38
Joined: Fri Jun 26, 2009 11:02 am

Re: Do commercial loans have same features as home loans?

Post by umbrella »

Hi everyone,

I am planning on buying a commercial property. When I approached my bank, they asked me whether I would want a fixed rate loan or a variable rate one. I do not which one would be better for me. Could someone in this forum give me some tips for me?

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Otto Dargan
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Re: Do commercial loans have same features as home loans?

Post by Otto Dargan »

Hi umbrella,

When you get a variable rate loan, the interest rate will change according to the funding costs of the lender or the RBA cash rate. You may be able to negotiate a lower interest rate if you are seeking a small commercial loan and have a residential property as security.

If you want to have peace of mind by knowing the exact repayments on your loan in advance then you may opt for a fixed rate period of up to five years. With a fixed rate, you will be able to plan your finances in advance. However, you will not be able to benefit from possible decreases in the market interest rates.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

umbrella
Posts: 38
Joined: Fri Jun 26, 2009 11:02 am

Re: Do commercial loans have same features as home loans?

Post by umbrella »

Thank you for explaining that to me. It seems that a fixed rate loan will be the better option for me.

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