A Guide to Commercial Mortgages in NZ
When planning to obtain a commercial mortgage in NZ, think ahead about all the implications, so you do not find yourself signing documents that you do not fully understand. Do some research about the different finance options available. Since the finance market, especially the commercial and industrial markets are so complicated, make time to educate yourself. This will help to avoid falling into any potential legal traps. Learn too about the costs of raising a commercial mortgage. And above all, be patient and take your time. It is important to have clear ideas about what commercial mortgage borrowing means and what are the correct steps to follow. Here are a few ideas:
- Do thorough market research on different commercial mortgage providers before deciding which one to choose. There are plenty of potential finance companies in Auckland and other cities in New Zealand. Some specialise in specific types of funding while others provide across the board services. Some are smaller operations and others are the business side of the big commercial banks. Think about which type of lender you will feel more comfortable with.
- Before applying for a loan, it is important to have all your papers in order. This includes your last year’s accounts audited by our accountant. You should also have papers showing the reason you are asking for this loan, the pay-back and the return n the investment you expect to receive.
- If there are any adverse credit issues then look to correct these. You can and even do a research about your company’s credit history so you are able to explain nay issues that may be recorded.
- In case you are taking the mortgage on an existing premises you own in order to open a business, having a business plan is absolutely essential. However, if your business is already operating then as mentioned before, be sure to provide your latest accounts.
- Make a realistic decision about how much money you can borrow. Also do not borrow more than you actually need. Remember that a commercial mortgage is a debt which carries liabilities and obligations. It also comes with increasing costs in terms of interest payments. So be sensible when assessing how much you want to borrow.
- Make a file that contains all the documents, files and correspondence related to the loan. This will save you time when you are asked to provide copies of documents, or if you need to refer to any papers to respond to lenders’ questions.
- Research the market and obtain costs from different lenders and brokers for commercial mortgage in NZ. While lenders will want to do research about you and your business, you should likewise research the finance companies. Ask as many questions as you can about that lender in order to obtain confidence in them. Ask them for references too from other clients they have dealt within the past.
- Once you have decided to apply for a commercial mortgage, think about the monthly interest payment expenses. If you want, you can also search online for a mortgage calculator to help you determine an approximate amount.
- There are many more data points to take into consideration when you apply for a commercial mortgage loan, besides the monthly payment. You still need to consider the loan term, the loan amount, the penalties, the type of loan and many others. It is a difficult decision.
- Once you have taken into consideration all the above requirements, it is important to also think about the other fees involved in such a transaction. These will include such things as a valuation on the building you are taking the loan against, your lawyers processing fees, any insurance policies you might need to take out and some financiers, especially the major banks, will also have fairly expensive administration fees as well. You need to build these into your budget and cash-flow forecast.
TIP: Remember to ask about the APR (annual percentage rate) which combines the interest rate and all the charges, fees and any other additional payments, and turned into a yearly interest rate. The APR is an indicator that tells you what your true are costs and will give you the opportunity to compare the costs of different loans.
TIP: Never take decisions based on verbal offers. A professional lender will always send you a written mortgage offer.
If you want a commercial mortgage in NZ there are plenty of lenders you can contact. These include boutique finance houses, brokers or you can go directly to one of the commercial banks. If you prefer not to go to a major bank, then you can look at one of the commercial mortgage broking companies like Global Pacific. You can find more details on their website www.globalpacific.co.nz/.