What is a commercial Loan?
These types of loans are normally used to purchase a property that would be used for business purposes: for example a shop, an office, a warehouse or a workshop.
Interestingly some lenders will look at certain security as commercial, for example six apartments on one title will be looked at by certain lenders only as a commercial loan facility, meaning that commercial lending rules apply.
There are many other types of properties that may be deemed as commercial also, meaning that commercial lending rules will apply. Most Commercial loans will also have a higher interest rate than your traditional residential and investment loans. These loans are not to be confused with an investment loan, as Commercial loans are generally more restrictive and the qualifying criteria is also different.
What can a Commercial Loan be used for?
- Purchase of property that you may run your business from.
- Purchase of property that you may rent out to another business.
- Construction for either of the above purposes.
- Refinance of an existing Commercial Loan to obtain a better deal.
- Commercial and Residential combination loan – where you can use a residential property to support the loan application and often obtain a better interest rate.
What do I need to know about a Commercial Loan?
We have many loans available that give you a fantastic range of features and benefits for commercial loans. Depending on your situation, you may want a fixed rate or variable rate loan or even a line of credit which will allow you to make interest only payments that will only be charged on the balance that you have drawn down and not the full limit if you have not used the loan up to its limit.
You may want features such as an interest only facility with the ability to pay extra and have the option to redraw when needed. Some loans available will have monthly fees and charges, others will have none.
There is no commercial loan that fits every application. There are a lot of options available to anyone looking to purchase a commercial property. This will generally involve a discussion with your accountant in order to be sure that the facility that you are provided with will be suitable for taxation purposes going forward. The last thing you need is to find out that you have been provided with a loan that is not suitable for your needs.
You will need to discuss your options in detail with your mortgage broker so that the broker will be able to investigate not only your loan options, but also your loan structure, to determine the most suitable structure for you.
What do I need to consider if I am applying for an Investment Loan?
Most people will already know what purpose their loan is for. If you are intending on purchasing a commercial property, and you would like further information relating to loan structures and how we can assist you, please check out the detailed information that we have put together under Loan Types
Please call Illawarra mortgage brokers to discuss your situation. With a quick phone call, you can find out exactly where you stand – usually this takes about five minutes.
What questions should I ask my broker when I call?
- How much am I able to borrow from the lenders? Critical question – if you want to borrow for example $400,000 and you only qualify for $380,000, you need to know before you apply.
- Which lenders are the most appropriate for my circumstances? We will compare several loans that fit your needs analysis. We will provide a recommendation to you once we have the relevant information from yourself. If you know details such as how much you need to borrow, if your credit history is clear, if repayments on any existing credit cards and personal or car loans are up-to-date and also know your income details, then we should be able to discuss which lenders are going to be available to you and why we would recommend a certain product.
- What are the repayments? In minutes you will know exactly what the basic repayments will be across several lenders products. Of course, once we discuss other possible loan structures that you qualify for, the repayments are likely to change marginally. The good news is, that any changes will more than likely result in a lower repayment. Please see our Split and Structured Loan page for more info.
- What are the costs to get into the loan? Costs associated with your loan application including establishment fees, valuation fees and lender legal fees are also assessed. We will also address other fees and charges on the spot, such as stamp duty costs, your legal fees if purchasing, mortgage insurance costs if applicable, and any other entry fees that may relate to your loan.
- What are the ongoing costs? We will also look at what fees the lenders will be charging on an ongoing basis. It is important for you to know what fees you will be paying after the loan is established – if any.
The questions above are ones that you should ask your finance broker about during your phone call. Obviously, it will help your situation to mention anything that you think could affect your chances of having your loan approved.
Your consultant here at Illawarra Mortgage Brokers will be asking you a few questions in any case, to have a better understanding of what you require.
A very simple example:
Let’s say a client mentioned that they had 2 children. This would prompt a couple of automatic questions from the broker:
- Are you receiving government assistance such as family tax benefits?
Firstly, we can use this type of income to support an application UNLESS a child is a certain age. If the child is over the age that the lenders policy stipulates, as a cut-off point, then it will not be practical to use this income. So the next question is obvious.
- How old are the children?
And of course these questions assist the broker in determining if certain lenders calculators will allow you to borrow what you need. There are many potential questions that we could ask, and we are trained to look for reasons to ask those questions. This is a direct benefit to you because it allows us to narrow down the best options available to you.
What information will Illawarra mortgage brokers be able to give me?
Once we have your details and know what loans you are able to apply for, we will compare the different products available. It is easier to show you a sample of our software below, so that you can understand the detail involved.
We have taken the lenders names off this example, just to be fair to the banks we used for the example – embarrassing to be lender number four in the comparison J. In this case, we have just used a basic 5 year home loan and compared four lenders for an owner occupier client.
You can easily see the different entry fees, interest rates, ongoing charges and mortgage payments at a glance, across the four lenders in this example. You can also see the savings between each lender at a glance. It really is easy to find that right loan when you can compare hundreds of loans in a matter of seconds.
Product Comparison Summary
For example purpose only – Bank names removed
|Lender||Lender 1||Lender 2||Lender 3||Lender 4|
|Product Name||5 Year Fixed Rate (Special Discount)||5 Year Fixed Rate Loan||5 Year Fixed Rate Loan||– 5 Year Fixed Rate Loan|
|Interest Rate(s)||4.59% 5 yrs (fixed)4.83% 25 yrs (var)||4.49% 5 yrs (fixed)5.16% 25 yrs (var)||4.69% 5 yrs (fixed)5.08% 25 yrs (var)||5.69% 5 yrs (fixed)5.00% 25 yrs (var)|
|Repayments||$2,048/month 5 yrs$2,098/month 25 yrs||$2,024/month 5 yrs$2,165/month 25 yrs||$2,072/month 5 yrs$2,155/month 25 yrs||$2,319/month 5 yrs$2,167/month 25 yrs|
|Features||Construction: Yes – must be over 4 month period.Extra Repay: Additional repayments up to a set tolerance amount (5% of the loan amount at the start of the current fixed rate term up to a max. $5,000) each year of the fixed rate interest period.Interest Only: Yes – up to 10 years. Minimise your repayments and free up cash by paying interest-only. Land loans owner occupied 3 years Investment loans 12 months||Extra Repay: Additional repayments of less than $10,000 in any 1-year period without incurring break costs.Interest Only: Maximum IO period 5 years||ConstructionExtra Repay: Yes – up to $30,000 maximum during fixed rate periodInterest Only
|Extra Repay: Up to $10,000 in additional repayments per year can be made on fixed rate loans without penalty.Interest Only|
|App Fee||Legal: $220||Legal: $295|
|Discharge Fees||$160: Discharge Lodgement Fee||$250: Discharge Fee:$250 + legal costs||$350:||$100:|
|Total Monthly Fees||$0||$0||$0||$0|
|Total Annual Fees||$11,250||$0||$11,850||$10,470|
|Total Setup Costs||$0||$220||$0||$295|
|Total Loan Cost||$363,686||$371,302||$382,603||$400,142|
Please remember that this is just an example and in a real life assessment we would be inputting a lot more data relating to your needs. The results would obviously vary with each individual scenario.
We recommend that you have an in-depth discussion with your mortgage broker to decide if this type of loan is suitable for you. You will find that they will give you some good options that you may not have thought about, allowing you to make a more informed decision before you apply this type of loan.
How can you apply?
These are your simple steps to apply for a loan.
- Contact us– to speak to a mortgage broker, please call (02) 4257 5626 (Southern area) or (02) 4283 5626 (northern area) or fill in our contact us online enquiry form.
- You will speak with a broker who will take into account your needs by discussing not only your requirements, but also any concerns you have, and offer you some possible strategies and ideas that you may not have thought about.
- Once we know what you require, we will draft and email you a proposal – this will usually consist of a few options that are easy to understand.
- Once you have had a chance to look at what options are available, you can contact your broker or the broker will call you, to discuss the proposal.
- You can then decide if you wish to proceed or you may just want to discuss more options.
Decided to go ahead? Great.
- Your broker will now take all of your information by completing a standard questionnaire with you and confirming details from your prior discussion – this is a 15 minute process for an average couple or you might prefer a face-to-face appointment.
- You will then be asked to complete a document checklist for your chosen lender and in the meantime, our office will prepare an application on behalf of the chosen lender.
- All that needs to be done now is for you to sign the application and give your checklist documents to your broker and your loan will be lodged
- We will then follow up on the progress of the loan and keep you informed as it progresses right up until the loan is completed.
It is that simple.
Put us to the test. You will be glad that you did.
Thank you for visiting our site and taking the time to learn what your mortgage broker does.
Posted 20 February 2015
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Mortgage finance brokers for residential and investment loans in Wollongong and the Illawarra region.