Here Is a Guide to Help Differentiate Between Commercial and Residential Mortgages.
Personal Income
The key difference between commercial and residential mortgages is that commercial mortgages don’t take your personal income into consideration whereas residential mortgages need to look at your personal income to see if you’re eligible for the mortgage. With commercial mortgages, they believe personal income should not be a factor when it comes to repayments of the loan because they believe the property itself bought from the commercial mortgage is enough to pay for itself
Processing Time
Commercial mortgages tend to have a shorter loaning term compared to residential mortgages. In commercial mortgages, it could take up to 6 weeks in order to process the commercial mortgage application. In residential mortgages, the application is typically faster, only taking 2-3 weeks.
Down Payments
For down payments in commercial mortgages, they expect you to put down a higher down payment compared to residential mortgages. But for commercial mortgages, if you’re purchasing the property with the intent of renting it out to others, the lenders will usually fund 75% of what the property is worth. (Usually houses, office space/ retail properties) Lenders or banks will only fund 65% of an industrial warehouse or other commercial properties.
Interest Rates
When comparing interest rates between residential mortgages and commercial mortgages, the interest rate on commercial mortgages will always be higher than residential. The reason being is that lenders and banks believe there is a higher risk of the borrower failing to fulfill the obligation which is repaying the loan.
Process Of Obtaining a Mortgage (Commercial vs Residential)
The process of obtaining a commercial mortgage will be more costly than a residential mortgage as commercial mortgage lenders tend to ask for more paperwork compared to a residential mortgage. In a commercial mortgage, they require an environmental report and a building appraisal report. An environmental report isn’t cheap, to get a thorough analysis conducted by an environmental auditor, it can cost around $2000 and upwards. As well as getting a building appraisal can cost up to $3000. These two reports play a big part in why the process of getting a commercial mortgage takes longer in comparison to a residential mortgage. If you use a broker with a commercial mortgage, the broker will charge a fee as they aren’t receiving a commission. Whereas, with a residential mortgage, brokers receive a commission.
How To Access Residential And Commercial Mortgage Services
Business Exchange has a section that has all the business services available. If you’re in need of a business service such as getting residential or commercial mortgages, going to our business services page will help. If there’s any questions regarding our business services, please call 1-877-337-1188
