In the current financial crisis, mortgages that are in trouble are not only residential homes but they also include commercial properties. A commercial mortgage is quite similar to a home mortgage but the borrower is usually a business entity instead of a single person. Thus, the evaluation of the creditworthiness of the business is harder to ascertain compared to an individual. The duration of the commercial mortgage renegotiation process is often longer than that for a residential mortgage.
The payment terms for a commercial mortgage is also different from that of a home mortgage because the former usually has a balloon payment at the end of the term. For example, a commercial mortgage may have an amortization schedule of 30 years but a term of only 10 years. Thus, for the first 10 years, the monthly payment would be based on a 30-year mortgage but at the end of the term, the borrower has to immediately pay the balance. At the end of the term, the borrower usually sells the property or finds another source of financing.
A commercial mortgage renegotiation may be required at the end of the term during a financial crisis because it is much more difficult to look for refinancing or a buyer. The modification allows the borrower to have more time to look for a buyer or another lender.
Almost all kinds of commercial properties can qualify for a commercial mortgage renegotiation. Examples are apartment buildings, shopping centers, strip malls, investment properties, warehouses, multi-tenant buildings, commercial lots, restaurants, hotels, office buildings, and business complexes.
Because the procedure is much more complicated than for a residential loan, a service company usually assists the borrower in going through the renegotiation process. This will go through the various stages of consultation with the borrower, analysis of the loan documents, pre-qualification, qualification, negotiation with the lender, and the final restructuring of the loan.
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