What are the benefits of refinancing a commercial mortgage?

hotel property in cornwall town
hotel property in cornwall town

Buying a commercial property can be a prudent investment. And, over recent years, the popularity of commercial property investment has increased rapidly, with investors looking for new opportunities to make substantial returns on their investments.

For businesses or individuals who own commercial property, refinancing their commercial mortgage can allow them to free up funds and change the terms of the mortgage.

If you’re a commercial property owner looking to refinance your commercial property, you have certainly landed in the right place. Within this article, we’ve taken a look at the benefits of refinancing a commercial mortgage.


What is a commercial mortgage?

A commercial mortgage is a mortgage used to purchase a commercial property. The repayments can be structured either with fixed or variable interest rate payments, depending on the terms of the lender.

As well as purchasing a commercial property, this type of mortgage can also be used to develop new premises, buy land, expand business premises, complete commercial developments and projects, or develop an existing property.


How does commercial mortgage refinancing work?

Many commercial property owners choose to re-mortgage their commercial premises as a way of accessing additional funds.

But what does the process involve?

Refinancing a commercial mortgage involves paying one mortgage off in order to replace it with another. This process allows commercial property owners to not only secure a better interest rate, but it can also free up more cash to invest in their business.

Whether you own or part-own a commercial property, you can re-mortgage and negotiate new terms with your lender, providing that you have a proven track record for making your mortgage repayments. You may also choose to look elsewhere for better deals but, if you’re switching to a new lender, they will expect you to pass their affordability and eligibility checks.


Why refinance a commercial mortgage?

Property owners choose to refinance their commercial mortgages for a number of reasons, including:

Releasing equity from the commercial property

Refinancing a commercial mortgage will allow you to release any equity you have built up since you took out the initial mortgage. This capital can then be used to invest in the business, improve cash flow, or buy additional properties.

Secure a better deal

Refinancing your commercial mortgage may allow you to access a better interest rate or better terms. If, for example, your fixed rate is coming to an end, refinancing may help you secure a better deal than being switched over to the lender’s standard variable rate.

Keep in mind that, if you switch to a new lender, you may be liable to pay an early exit fee.


Borrow more

If the value of your commercial property has increased since you took out your current mortgage, you might be able to borrow more against the value of the property. This can be useful if you want to free up funds to carry out renovations or maintenance on the property or expand the business.


Change the type of mortgage

If you are planning to change the mortgage from an owner-occupier agreement to a commercial investment, refinancing can allow you to do this. This can be useful if, for example, your business has outgrown the property and you want to let it yet rather than sell it.


What are the pros and cons of refinancing your commercial mortgage?


The pros

The benefits of refinancing a commercial mortgage are:

  • Access better deals
  • Reduce monthly outgoings
  • Release equity from the property
  • Access funds needed to grow and expand businesses


The cons

Of course, as with any type of financing, there are also potential downsides to consider if you’re thinking of refinancing your commercial mortgage, including:

  • The repayment period may be extended
  • Additional fees such as broker fees, valuation fees, and legal fees


Find out more

If you’re looking to refinance a commercial mortgage, it’s important to speak to someone experienced in the sector to ensure that you are aware of all the funding options available to you. Speak to one of our skilled and experienced team; we are always on hand to answer any of your queries regarding commercial mortgages. Get in touch today.

Stewart Hindley
Specialist financial experts helping you secure commercial loans across the hospitality, leisure and commercial property sectors.

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