4 Types of Commercial Mortgages

A commercial mortgage can be the right solution for helping you buy or update your business real estate. Once you secure your funding, it’s time to decide what loan terms are best for your company. There are at least four different types of commercial loans to consider.

1. Fixed-rate Amortized Mortgages

When a loan is amortized it means a schedule is created to decrease the balance over a certain time with consistent payments. A portion of both principal and interest are paid each month, with a higher percentage of interest at the start. For example, during your initial payments, 95 percent might go toward interest while only 5 percent is applied to the principal. Towards the end of the loan, the ratio will be flipped. With a fixed rate, the interest rate never changes and your payment will always be the same. This is nice for locking in low rates, but your payment will not decrease even if rates drop.

2. Variable-rate Amortized Mortgages

With a variable rate commercial loan, the interest rate is allowed to fluctuate based on a specific market index. This is great when market rates are low but it can be challenging when rates are on the rise. These types of loans do have an interest rate cap, but you have to make sure you’re able to make payments at that maximum interest level.

3. Interest Only Mortgages

Interest-only commercial loans allow you to pay only the interest portion of your loan during the first several years of your loan. This is helpful for startup businesses you have little capital and need the lowest payments possible to start. It can be dangerous though because once the initial period is over and the principal is added into the mix, payments can be much higher and harder to afford.

4. Balloon Payment Mortgages

These are short-term loans that require very small monthly payments of principal and interest during the course of the loan (generally five to 15 years.) At the end of the loan though, there is a large lump sum due. Many businesses who go this route will often refinance into an amortized loan after a few years to avoid making that balloon payment.


onEntrepreneur is an online magazine centered on the world of business, entrepreneurship, finance, marketing, technology and much more. We are regularly updated – sign up with our newsletter to send the updates directly to your inbox.

Leave a Reply

Your email address will not be published. Required fields are marked *