Aside from the disadvantages already mentioned, there are
a number of things you should be aware of as regards commercial
mortgages:
Mortgage fees. The lender may charge up-front loan
or processing fees. Check these fees carefully, and try
to get an estimate as soon as possible to help you evaluate
the mortgage package.
Prepayment. Ideally, you want to be free to pay
off the mortgage (all or in part) at any time before its
due date. Unfortunately the majority of lenders are likely
to charge a redemption penalty in the first 3 to 5 years
of the mortgage. But after that initial period, you should
make sure that your mortgage agreement gives you this flexibility
and try to avoid a prepayment penalty for paying off the
mortgage or part of the mortgage early.
Grace period. Try to get a grace period for any
payments. For example, the monthly payments may come due
on the first day of each month, but they won't be deemed
late until the fifth day of the month.
Sale and leaseback. An alternative to mortgaging
a property is to enter a sale and leaseback. In this transaction,
you would sell the property to a buyer, who would immediately
lease the property back to you. In this situation the main
advantage is that the buyer would be required to find the
financing for the purchase. However you have sold your ownership
of the property and you would not share in its appreciation.
Legal and Professional Fees. Before you finalize
your purchase and ownership of the property passes to you,
you will incur several closing costs above and beyond the
cost of the property and fees arranging for the mortgage.
Common expenses to be paid at closing are title insurance,
the site survey fee and various fees for preparing the legal
documents.
