A loan in which real estate is used as collateral – a guarantee that the loan will be repaid and on time – is usually called a commercial mortgage. While it is much like a residential mortgage, the difference is simply that the collateral and the building purchased with the mortgage is used for commercial rather than residential purposes.
A loan would be considered a commercial mortgage if, for instance, an entrepreneur were moving from his home office to a storefront retail, office or warehouse location due to the growth of her business.
If, however, she simply wanted to expand her home office by another few feet and needed a mortgage loan to do so that loan would probably be considered a residential rather than commercial mortgage.
Another difference between a commercial mortgage and a residential mortgage is how the financial institution looks at the ability to pay the loan. The okay for a residential mortgage, as well as the rate, are determined by the borrowers financial situation – her or his credit history, and current ability to repay the debt.
When considering a commercial mortgage, however, a lender would look at the...
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