Interest Only Commercial Mortgages

One of the biggest purchases a business makes is property. Whether you’re developing an office or looking to purchase your premises for a retail or hospitality venture, you’ll probably need a commercial mortgage to fund the purchase. 

Like with a residential property, there are two different types of commercial mortgages - a traditional mortgage whereby you place a deposit and the lender covers the cost of the building, and your repayments cover the equity in the building as well as any interest to the lender. And, as the name suggests, an interest-only mortgage is when you only repay the interest on the loan for a fixed term, and then you repay the loan in full at the end.

So, while it can be a more affordable option at first, you have to consider the long-term impact of this type of mortgage. Due to the technical nature of commercial mortgages in general and the significant costs associated, it’s crucial to choose a broker who has a proven track record of working with businesses like yours.

At Rangewell, we have a team of experienced financial professionals who will assess your situation and help you secure a commercial mortgage that works for your venture - both now and in the future. So, if you are considering an interest-only commercial mortgage, or you are not sure which type of mortgage is right for you, then get in touch with Rangewell today to discuss your options.

How do interest-only commercial mortgages work?

So, we’ve already touched on the simple structure of an interest-only commercial mortgage, but let’s dig a little deeper into how they work. Typically, a lender will own the property, and your repayments will be calculated based on the interest rate of the loan. At the end of the loan term, you will be expected to repay the mortgage in full. 

In the short term, this might be a solid solution as repayments are typically lower. So if owning the property sooner is important to you, then you will want a traditional repayment commercial mortgage instead.

While each lender has their own entry requirements, the interest rates are largely dictated by economic factors. So, to ensure you can continue to afford the repayments even if the economic situation changes, it’s vital that you speak to an experienced professional who can assess your situation as a whole, including any existing debt, so you can pick the right option for you. 

Why choose an interest-only commercial mortgage

With the above information in mind, there are many reasons why a business might opt for an interest-only commercial mortgage over a traditional repayment mortgage. Firstly, the initial repayments will likely be lower, so this is ideal if you are starting a new venture with limited cash flow.

Lower payments also mean you can often borrow more, so if the property you are buying is of a higher value, like an urban office block, then an interest-only mortgage might bring it within your reach.

For these reasons, interest-only commercial mortgages are more common among those purchasing property to rent out, for example, an office building with multiple units or a warehouse shared by several companies. As a landlord, your goal is to ensure your tenants pay more rent than you pay out in the mortgage, so by keeping the monthly payments low, you have a better chance of turning a profit. 

While this is great when you have an office block full of paying tenants, it will be difficult to cover costs if you have vacant units. Keeping in mind that an interest-only commercial mortgage means you are only paying the interest, this might not be the right option for you if you are keen on investing in an asset (i.e. a property) in the long run.

So, if you need help determining whether an interest-only commercial mortgage is right for you, and ensuring you get the best possible terms for your situation, then speak to Rangewell. We work with you every step of the way, from assessing your existing debt through to assembling an application. 

With access to the whole of market, including specialist lenders in a number of fields, we are well-placed to help you find the the right lender and finance product you’ll need to achieve your goals.

Refinancing an interest-only commercial mortgage

If you already have an interest-only commercial mortgage, you might be considering remortgaging. Whether you have completed your term or you are looking to access more money to invest in your business, it’s never a good idea to assume your current lender is offering the best deal. 

As an interest-only commercial mortgage is typically cheaper in the short term, you might have opted for this product at the start of your journey, or when you had higher outgoings. Perhaps you now have a fully tenanted office block, then it might be worth looking at moving to a repayment mortgage, which allows you to invest in the acquisition of the building. 

But remember, at the end of your interest-only commercial mortgage, you will need to repay the loan in full. So, at this stage, you typically have a few options:

• Sell the building to recoup the loan, and possibly make a profit if the value of your property has increased
• Sell a different property 
• Remortgage to another product and extend the loan term

Your lender may offer extended terms without remortgaging, but we recommend speaking with our expert team before you agree to the first option they offer. 

Whatever your goals, it’s always best to speak to an impartial team of experts before signing on the dotted line. Taking into account your current financial situation, and with expert knowledge of the lending landscape, the team at Rangewell can support you to make the best choice for your business. 

Learn more about how to refinance a commercial property loan in this dedicated guide from our team.

How to get an interest-only commercial mortgage 

Interest-only commercial mortgages are less common than they were before the 2007-08 financial crisis. Over a decade has passed, but lenders are still a lot more cautious when offering both individuals and companies mortgages. 

So, to secure an interest-only mortgage, you may need to provide significant proof that you can afford the payments, and that you will be able to afford to repay the loan in full at the end of the term - either by selling the property or through another revenue stream. 

The best way to get an interest mortgage that works for you is to speak to an independent advisor. At Rangewell, we work with commercial property owners to find and secure the best mortgages for their businesses from a wide variety of lenders. So, if you are interested in this type of commercial mortgage, or you already have one and are curious about your options, get in touch today, and we’ll see what we can do for you.

Apply for an interest-only commercial mortgage with Rangewell

To find out more about the interest-only commercial mortgage rates available to your business, speak to Rangewell. We have a team of experts with a proven track record of supporting commercial property owners like you to find and secure both interest-only and repayment commercial mortgages. 

A commercial mortgage is a significant investment that covers several years, so it’s vital that you get the best possible product. Buying a commercial property or need to refinance? Don’t hesitate to contact Rangewell today; we can help you succeed.