What Is The Difference Between Commercial And Residential Mortgages?

Before applying for a loan to purchase property, you need to know your options. Mortgage loans are of two types; commercial and residential mortgages. What is the difference between commercial and residential mortgages. From their naming, you can easily figure out that if you need a mortgage for a business, you should apply for a commercial mortgage. Conversely, if you need a mortgage for your home, you should apply for a residential mortgage. However, there are other distinctions that you should be aware of, as you will see below. Please consult with a Long Island mortgage banker for better knowledge in this area.

Amount of Down Payment

The risk that a mortgage loan involves affects the repayment in various ways. For instance, you can negotiate with a lender about the amount of the down payment for residential mortgages, while lenders are stricter with commercial mortgage loan down payments.

The amount of down payment can be higher for commercial mortgage loans than residential mortgages.

Property Type

The type of property determines what mortgage it qualifies for. However, there are many other variations to the two mortgages. If a residential apartment building has five or more units, it is financed with a commercial mortgage. Commercial properties like office buildings also use commercial mortgages.

Repayment Period

Since residential mortgages have lower risks, it can make their repayment more flexible. In residential mortgages, the repayment period can be between 15-50 years. Though you can negotiate the repayment period for commercial mortgages, the repayment period might not be as long and is usually about 10 years.

With residential mortgages, you can make the mortgage payment in advance. However, you may sometimes face penalties with commercial mortgage loans if you try paying for your commercial property soon.

The Risk Involved

The main thing separating the two mortgages is the risk involved.

In commercial mortgages, the income from the investment can be used to pay for the loan. Therefore, the lender must predict whether the business will succeed instead of asking about your annual salary. This is not an easy task, making it riskier.

Whether you are searching for a commercial or residential mortgage for your Long Island, NY property, A mortgage broker can help you.