The term “interest only” in interest only commercial mortgage refers to a commercial mortgage loan for which the borrower only makes payments on the interest for a set period of time at the beginning of a loan’s term, and not the principal amount. After this set time period has elapsed, the loan is amortized to require payment on both the principal and interest.
Benefits of an Interest Only Commercial Mortgage
One of the greatest benefits of an interest only commercial mortgage is that it can allow you to initially make small loan payments while focusing on growing your cash flow. You are then more able to contribute a greater amount to paying off your debt in the future. This is especially applicable to business owners who may not make much money during the growth phase of their business but need the space nonetheless.
Interest Only Commercial Mortgage Disadvantages
The drawback of an interest only commercial mortgage is that once the interest only payment period ends, monthly payments become considerably larger because none of the principal has been paid off yet. If you have not ramped up your income stream considerably, you run the risk of defaulting on your loan. Another concern with interest only commercial mortgage loans is that considering today’s real estate market, the borrower may end up paying more than the property is actually worth when it is finally paid off.
Interest only commercial mortgages can be a big help to a business trying to get off the ground. Just understand that it greats progressively harder as time goes on, however, because what you aren’t paying in the front-end is only getting tacked on to the back. Consider these factors very carefully, because if it doesn’t fit into your strategy, it may potentially cost you your business. If you do, however, it could push you to the next step to growing towards your main goal.