There are three different types of commercial mortgages available to borrowers;
Capital repayment, interest only or a combination of both types.
There are also different types of commercial mortgage rates available including variable rate and fixed rate commercial mortgages;
Commercial variable interest rate, this interest rate changes in line with the Bank of England base rate.
Commercial fixed rate, this interest rate is fixed for a set amount of time, usually between 2 - 5 years. At the start of the fixed commercial mortgage it will usually be higher than the commercial variable interest rate.
Fixed or Variable Rate – Which is right for you?
UK commercial mortgage lenders usually offer two general kinds of mortgage loans: those with a fixed rate and those with a variable interest rate. Fixed rate UK commercial mortgages feature the same interest rate that was agreed upon at the signing of the loan for the entire repayment period. Variable rate UK commercial mortgages have a small fixed rate during a short period at the beginning of the repayment period and then it turns into a variable rate thereafter. Variable rate UK commercial mortgages are typically the Bank of England’s published rate with an additional premium tacked on.
Fixed rate UK commercial mortgages are considered much less volatile than their variable rate counterparts because the payments consistently stay the same over the life of the loan. No matter what the Bank of England’s published interest rate climbs to, the borrower can rest assured that his or her payments will remain the same. Additionally, if the interest rates drop to a more competitive level than that of the fixed interest rate that the borrower has presently, he or she can refinance the commercial mortgage with little or no penalties incurred from the lien holder. These are generalizations, however, and each financial institution includes its own clauses.
Variable rate UK commercial mortgage payments can rise and fall along with the Bank of England’s published interest rate. The lender typically charges a premium on top of the published rate for the remainder of the mortgage past a relatively brief period of a low, principle-only set of payments at the beginning. It is for this reason that variable rate UK commercial mortgages are considered by many to be quite risky unless the borrower is quite familiar with the terms of the loan and the economy as a whole.
Variable interest rate UK commercial mortgages are popular when it appears that the current interest rates are in a dropping trend. However, if it appears that interest rates are on the rise, a variable rate UK commercial mortgage loan is probably not the most sensible option. The types of mortgages that are offered to the borrower will also depend heavily on the borrower’s present financial circumstances and their credit history will weigh heavily as well. To qualify for a substantial UK commercial mortgage, borrowers will typically need to prove to the bank that they are adequately prepared to repay the mortgage in a variety of future circumstances, not all of which include the commercial success of the business venture for which the property is to be used.
UK commercial mortgage rates start from a margin of 2.25% - 5.5% above the London inter bank offered rate (LIBOR) and will depend on the loan to value (LTV) and status of applicant.
The UK commercial mortgage rate you are offered will be based on both current commercial mortgage rates and the amount of risk the commercial mortgage lender perceives they are to incur.