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Select the right loan program:
Commercial loans come in many shapes and sizes. Deciding which loan makes the most sense for your financial situation and goals means understanding the benefits of each. Whether you are making a commercial acquisition, or simply refinancing, there are 3 basic types of loans. Each has different reasons you would choose them.
1 Fixed Rate Mortgage:
Commercial fixed rate mortgages usually have fixed periods lasting 3, 5, 7, 10, 15 or 30 years; the most common of which are 5, 7 and 10 years. These fixed rate loans can have amortization periods that are typically 20, 25, or 30 years, and some may even have Interest Only options. Throughout those years, the interest rate and monthly payments remain fixed. You would select this type of loan when you:
- Plan to own the subject property at least as long as the fixed rate period you choose
- Like the stability of a fixed principal/interest payment
- Don’t want to run the risk of future monthly payment increases
2 Adjustable Rate Mortgage:
Adjustable Rate Mortgages (often called ARMs) can typically last for from 3 to 30 years, just like fixed rate mortgages. But during those years, the interest rate on the loan fluctuates; it may go up or down. Monthly payments increase or decrease. You would select this type of loan when you:
- Want the absolute lowest interest rate with the lowest payment
- Don’t mind having your monthly payment periodically change (up or down)
- Comfortable with the risk of possible payment increases in future
- Think the subject property income will probably increase in the future
3 Combination Rate Mortgage:
Combination rate mortgages combine fixed interest rates and adjustable interest rates. Lenders often refer to these loans as hybrid loans. For the first few years (3-7), the interest rate is fixed. It remains the same and so does your monthly payment. During the remaining years of the loan, your interest rate becomes adjustable and can vary. You would select this type of loan when you:
- Want the stability of a fixed principal/interest payment in the short-term
- So you want to repair your credit by demonstrating your ability to make regular payments, then refinance for a lower interest rate
- Want to borrow more and get a lower monthly payment than a standard fixed rate loan
By carefully considering the above factors and seeking/utilizing our professional advice, you should be able to select the one loan that matches your present conditions and needs as well as your future financial goals.