Choosing The Repayment Period On A Commercial Mortgage
There are a number of factors that you need to consider when arranging a commercial mortgage with one of those being over what period you would like to repay the liability. Typically, you can borrow monies on such a mortgage over between 2 to 30 years. However, there are numerous lenders offering such finance so it is quite possible that one will offer a different range of repayment periods than their competitors.
If you require a capital and interest repayment type commercial mortgage then, in very simple terms, the longer the repayment period the more that you will pay back in interest. So, if you borrowed £250,000 over 25 years you will end up paying back a lot more interest than if you borrowed the funds at the same rate of interest over say 5 years.
Obviously, it is important that the monthly repayment is affordable so this is an important factor in choosing the repayment period. The shorter the term on the above type of commercial mortgage the more you will pay back each month.
A lender will normally take into account the “lifespan” of the asset that your business wishes to borrow the money for when considering the term. For instance, if you are borrowing money to buy an industrial unit then they may consider a term of say 30 years but if you were looking at arranging finance to buy a fleet of vans then they may consider up to say 5 years. This is because it is likely that the commercial premises will still be standing and useable in 30 years time but that is unlikely to be the case with the vehicles. Furthermore, you are probably going to want to change the vans during or at the end of that 5-year period for replacement vehicles and want to take on new finance to purchase them so it would be preferable to have repaid the original borrowing.
As you can see, there are a number of factors to consider when deciding on the repayment term on a commercial mortgage.