What is commercial remortgage?
Commercial remortgaging, or refinancing, is simply replacing your existing mortgage with a new one, much like remortgaging a residential mortgage. You will use the property as security.
Key Differences Between Commercial and Residential Remortgages
Transitioning from understanding what a commercial remortgage is, let's explore the key differences between commercial and residential mortgages.
Benefits of Commercial Remortgaging
Benefits of Commercial Remortgaging: Lower interest rates can save you money. By reducing mortgage terms, you could pay off your loan sooner. Different rate options offer more control over payments.
Lower interest rates
Lower interest rates can reduce monthly costs significantly. For example, commercial remortgaging often offers more favourable rates compared to initial mortgages. With lower interest, businesses save on repayments and increase their capital gains.
By switching to a lender with reduced mortgage interest, companies can free up funds for other investments. This access to equity allows for better use of finances in expanding the business or improving properties.
Lower rates provide a clear financial benefit, making remortgaging an attractive option for many business owners.
Reduced mortgage terms
Remortgaging a commercial loan often allows you to reduce the term without sharply increasing payments. This means paying off your debt sooner and saving on interest costs.
Adjusting the mortgage terms can fit changing circumstances better. For instance, a business expecting higher rental income might opt for shorter repayment plans.
Considerations When Remortgaging Commercial Property
Think about the borrowing limits and eligibility criteria. Understand potential risks before making a decision on commercial remortgaging.
Borrowing limits
Commercial mortgages come with specific borrowing limits. NatWest requires a minimum refinance amount of £25,001. There is no upper limit on variable interest rates with NatWest.
The maximum borrowing generally reaches 75% of the property value.
Equity from other properties can boost borrowing limits further. This helps businesses looking to secure larger sums for their commercial ventures or investments. Next, let's look at the eligibility criteria for remortgaging commercial premises.
Eligibility criteria
Business owners' or directors' credit history plays a key role in eligibility. NatWest uses credit scoring to assess lending risk. Good business performance can also boost your chances if you are an owner-occupier.
Rental income is crucial for investment properties. Banks set borrowing limits based on rental earnings. Strong, consistent rental income leads to higher loan amounts from commercial mortgage lenders like Revolution Brokers and other private banks.
Potential risks
Higher costs can hit if interest rates rise. Commercial property refinancing often comes with exit costs within the deal period. These charges can dent your profits and strain finances, especially if rates change unexpectedly.
Property values might drop, leaving limited options. If this happens, selling or refinancing commercial property becomes hard. This risk requires extensive research and careful planning to avoid being repossessed.
It is stressful but necessary for securing a stable commercial mortgage or loan-to-value ratio.
Why should I remortgage my commercial property?
Commercial property owners choose to refinance for a number of reasons.
- to release equity that has built up during the course of your mortgage term. The equity can be used to pay off existing debts or invest in a new property
- if the property has increased in value, to borrow against its new valuation
- to access a better deal with another provider. As commercial property deal terms may have changed since you took out the original mortgage, chances are you'd be better off refinancing for more favourable rates
- to change from owner-occupier to commercial landlord, perhaps if you want to keep the existing property and purchase another one
