Repaying a commercial mortgage

* Introduction
* Overview
* What We Need to Know
* Pros and Cons
* Repayments
* Types of Lender
* Getting a Quote
Commercial mortgages carry higher interest rates than residential loans because you are considered a higher risk.

The term of the loan is at the discretion of the lender. It will almost certainly be less than the standard 25-year mortgage for domestic property, and can be as short as ten years in some cases.

The interest rate you are offered will be based on the lender's own assessment. Typically it will be between 1 per cent and 6 per cent above the Bank of England base rate.

There are two interest rate options - variable or fixed.

Most commercial mortgage schemes have variable rates. This means that the interest rate varies in line with the Bank of England base rate - but remember it will be a few percentage points higher. Your repayments may rise or fall, and you should budget accordingly.

A fixed rate means your repayments are fixed for a certain period of time, usually two to five years. At the time when the rate is fixed, it will usually be higher than the variable rate.

Repayment methods

Different kinds of mortgages are repaid in different ways. The lender or your broker will explain the various options available to you. With a repayment mortgage - sometimes called a capital and interest mortgage - you repay a portion of the loan and the accrued interest each month.

An interest-only mortgage means only the interest is paid off with each monthly payment. To be eligible, you must have an accompanying insurance or pension policy, such as those featured below, that will mature at a value close to the outstanding lump sum.

An endowment mortgage provides life assurance cover and a fixed payment for investment. This is a risky method of repayment, as it depends on the performance of stock markets.

An Independent Savings Account (ISA) mortgage is an interest-only mortgage - you make payments into an ISA, and this tax-efficient investment is used to repay the capital. However, ISA rules are subject to change. Borrowers should seek advice from a suitably qualified financial adviser.

A pension plan mortgage entails payments made into a pension fund that repays the mortgage on maturity. Again, you should seek specialist advice if you are considering this option.



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Reproduced with the permission of Business Link (
The overall cost for comparison is 10.53% APR. The actual rate available will depend upon your circumstances. Ask for a personalised illustration. Early repayment charges apply. A broker fee of 1% may apply.  Your home may be repossessed if you do not keep up repayments on your mortgage.Our Financial Resources directory is available here