Commercial Mortgage Modification

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Commercial Mortgage Modification

A commercial mortgage modification is a modification of a mortgage of a business' or an individuals commercial property. Some reasons people or businesses may need a mortgage modification could be that the property is losing money and the owner can no longer afford it, or the business is no longer worth the original amount or the payment just become too much.

What Can Happen if the Owner Can't Pay?

Some commercial mortgages are non-recourse, if that is the case, if the individual or business defaults on payment, the creditor can only seize the collateral and has no further claim against the borrower for any remaining deficiency. What this means is the owner or owners will lose everything except anything they did not spend to pay off the mortgage. What this means is they will lose their commercial property and most likely nothing else.
A large number of commercial mortgages require owners to pay off the mortgages over a period 30 or so years and then after that term is up if the loan on the commercial property is not paid off they are required to pay off the rest of the mortgage in what is called a "balloon payment". After the mortgage term is up the owners sometime choose to sell the property and this allows them to keep all the profits they made and make a profit off of the property instead of losing the property and receiving nothing. Keep in mind the terms and payment schedules can vary.

Why modify?

Well, as stated before, many people and businesses are not able to pay off the mortgage before the term is up and are then forced to sell the property in order to, at the very least, break even. A mortgage modification would be most useful early on, maybe once the owner realizes what kind of profits the property can make or they get a feel for what kind of budget they will have. Once that is figured out a commercial mortgage modification can lower the cost of the mortgage either per month or over all and this can allow for a larger budget and more money for reinvestment or money to pay off the mortgage in the final, balloon, payment.

Modifying as early as possible is the key to saving large sums of money now and in the future. If the mortgage is modified early on the money saved can almost certainly help the owner exponentially. With money, most peoples modo is the sooner the better, and in business, a lot of times this is true. Even if you can afford the payments, the property may lose value and may therefore be eligible for a renegotiation of the price to a fair value.

Payment Modification
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