How commercial mortgages work
A commercial mortgage is a loan to buy property used for business, such as offices, shops, warehouses or mixed-use buildings. It's repaid monthly, either on a repayment basis or with interest-only payments for some or all of the term.
Lenders usually ask for a larger deposit than for a home, often at least 25%, and look at the business's accounts and the property's income when deciding how much to lend.
Worked example
A £500,000 property with a £150,000 deposit means borrowing £350,000. At 7% over 20 years on a repayment basis, the monthly payment is £2,713.55 and the total repaid is £651,251.11.
Rates and costs
Commercial mortgage rates are agreed with each borrower and are often linked to the Bank of England base rate. Arrangement and valuation fees are typically higher than for residential mortgages.
Interest is worked out monthly at one twelfth of the annual rate. Lenders may calculate interest differently (some charge it daily), so your actual payments can differ slightly.
Inputs for the commercial mortgage calculator
Property price
The price of the commercial property.
Deposit
The amount you're putting in. Lenders often ask for at least 25%.
Interest rate (per year)
The annual interest rate on your commercial mortgage. The rate shown is only an example, so enter the rate from your quote. Interest is worked out monthly at one twelfth of the annual rate. Lenders may calculate interest differently (some charge it daily), so your actual payments can differ slightly.
Term
How many years the mortgage runs for.
Repayment type
Repayment clears the loan over the term. Interest only leaves the full loan to repay at the end.
CALCULATOR QUESTIONS
Commercial mortgage calculator questions
How much deposit do I need for a commercial mortgage?
Lenders commonly ask for 25% or more of the property's value, depending on the property and the business.
Can a commercial mortgage be interest-only?
Yes, some are interest-only for part or all of the term. Choose the option above to compare payments.
Are commercial mortgage rates fixed?
They can be fixed or variable. Variable rates are often set at a margin above the Bank of England base rate.
Does this include fees?
No. Arrangement, valuation and legal fees are extra, and they're usually higher than for residential mortgages.