Are you considering a commercial mortgage but unsure about the costs involved? Wondering how much you'll need to budget for fees and interest rates? You're not alone. Understanding the financial implications of commercial mortgages is an important step for any business owner.
As trusted commercial finance brokers, we have years of experience in navigating commercial mortgages and helping our clients feel confident in covering their fees. So we're here to demystify commercial mortgage costs and guide you through the process with ease.
What are commercial mortgage fees?
First things first, what are commercial mortgage fees? These are the costs you incur when taking out a mortgage on a commercial property. Understanding these fees before committing to any loans can help you avoid any surprises and streamline your property finances.
Arrangement fees
One of the main expenses you'll face when setting up a commercial mortgage is the arrangement fee — a cost your lender will charge for setting up the mortgage. This fee usually ranges from 1% to 2% of the loan amount. For substantial loans, this can be a significant sum, so it’s important to include it in your budget.
Valuation fees
Valuation fees cover the cost of assessing the property's value. This step is essential for lenders to confirm the property's worth. The cost varies depending on the property's size and type, but it's a necessary expense for obtaining a commercial mortgage.
Legal fees
You’ll also need to factor in legal fees to cover the cost of the legal work involved in establishing a mortgage. It's advisable to engage a solicitor who specialises in commercial property. While these fees can vary, having a specialist can save you time and prevent legal complications.
Other fees
Besides the basic fees, you may also find yourself navigating additional costs such as early repayment charges or exit fees – it’s definitely worth consider these against your project and your longer-term business plans.
How much interest will you pay on a commercial mortgage?
Understanding interest rates is equally important when considering a commercial mortgage because they determine the amount of your monthly repayments. The interest rate offered can vary based on factors like the loan amount, loan term, property type, and your business' financial health. Another aspect to consider is whether a variable or fixed rate is preferred.
Rates vary, based on all the factors mentioned above that relate to you and your project, but are considerably influenced by macro-economic matters – as seen by the Bank of England increasing Base Rate in response to a rapid rise in inflation during 2022.
Lenders calculate an interest margin for rates which is typically added to Base Rate to produce the rate you actually pay. The interest margin is determined by the factors relating to you and your project so the higher the risk, the higher the margin. As a guide, the interest margin could be as low as 2% for the strongest proposals, but margins typically fall from 3% to 4.5%.
Why use a commercial finance broker?
The world of commercial mortgages can be complex. If you’re feeling daunted by the prospect of sifting through your options and working out which lender will offer you the best deal, a commercial finance broker is your best ally.
Commercial finance brokers, like our team of experts at Funding Round, use industry experience and trusted contacts to compare a range of options and secure a deal that aligns most closely with your business needs, budget and your attitude to risk.
We work to minimise fees and the overall cost, whilst balancing that against your project and preferences, so naturally, we strive to find you the most favourable terms. When you consider that a typical mortgage term is 20 years, a small variance in rate can make a difference of thousands of pounds over the mortgage term. We’re here to take the stress and guesswork out of the process, ensuring you get a tailored solution that supports your business growth.
Demystify commercial mortgage fees with Funding Round
While the fees and interest rates associated with commercial mortgages can affect your property finance choices, having a solid understanding of how they work can help you find the best deal.
These costs are an investment in your business’ future but if you’re feeling unsure where to start with finding the right commercial mortgage, contact Funding Round. Our experienced commercial finance brokers are ready to guide you, helping you understand the fees, find the right lender, and secure a mortgage that fits your needs and business strategy.
Get in touch with our friendly team and move one step closer to unlocking your business’ full potential.