Mortgage
A mortgage is a loan used to purchase real estate, where the property itself serves as collateral. The borrower makes regular payments of principal and interest over a set term (typically 15 or 30 years), and the lender has the right to foreclose on the property if payments aren't made.
Mortgage Definition
A mortgage is a loan used to purchase real estate, where the property itself serves as collateral. The borrower makes regular payments of principal and interest over a set term (typically 15 or 30 years), and the lender has the right to foreclose on the property if payments aren't made.
Mortgage in Practice — Example
Your growing business needs its own office space. You find a $500,000 commercial property and secure a commercial mortgage with 20% down ($100,000) and a 25-year term at 6.5% interest. Your monthly payment is approximately $2,700. Over the loan term, you'll pay about $310,000 in interest on top of the $400,000 principal — but you'll own the property outright and build equity along the way instead of paying rent with no return.
Why Mortgage Matters for Your Business
For many businesses, real estate is one of the largest investments they'll ever make. A commercial mortgage makes it possible to own your workspace rather than rent, building equity and locking in occupancy costs over time.
Owning commercial property can also be a wealth-building strategy. As the property appreciates and you pay down the mortgage, your equity grows. Many business owners hold commercial property in a separate LLC, lease it to their operating business, and create a valuable real estate asset alongside their primary business.
However, commercial mortgages carry significant risk. They typically require larger down payments (20–30%), have shorter terms than residential mortgages, and may include balloon payments. If your business hits a rough patch and can't make payments, you could lose the property.
How Mortgages Work
| Feature | Residential Mortgage | Commercial Mortgage |
|---|---|---|
| Down payment | 3–20% | 15–30% |
| Term | 15–30 years | 5–25 years |
| Interest rates | Lower | Higher |
| Qualification | Personal credit/income | Business financials + personal guarantee |
| Balloon payment | Rare | Common |
Key mortgage components:
Mortgage vs Lease
A mortgage lets you own the property and build equity, but requires a large upfront investment and long-term commitment. A lease keeps you flexible and limits upfront costs, but you build no equity and are subject to rent increases. The right choice depends on your business's stability, growth plans, and cash position.
FAQ
Q: Can my LLC get a mortgage?
A: Yes, but most commercial lenders require a personal guarantee from the business owner(s). This means you're personally liable if the LLC defaults on the loan.
Q: What credit score do I need for a commercial mortgage?
A: Most lenders want a personal credit score of 680+ and a strong business track record (2+ years, positive cash flow). SBA 504 loans have more flexible requirements for qualifying businesses.
Related Terms
> Need a business bank that actually makes sense? Holdings offers free checking, 1.75% APY, and AI-powered bookkeeping. Open a free account →
Related Terms
A trust is a legal arrangement where one party (the trustee) holds and manages assets on behalf of another party (the beneficiary). Trusts are commonly used in estate planning, business succession, and asset protection. The person who creates the trust is called the grantor or settlor.
A bank draft is a payment instrument issued by a bank on behalf of a payer, guaranteeing the funds are available. Unlike a personal check, where the payer's account might not have sufficient funds, a bank draft is backed by the bank itself — making it as close to cash as a check can get.
An ACH return is an electronic payment that couldn't be processed and is sent back to the originator. ACH (Automated Clearing House) returns happen for various reasons — insufficient funds, closed accounts, invalid account numbers, or customer disputes. Each return comes with a specific reason code
A beneficiary is the person or entity designated to receive funds, assets, or benefits from an account, insurance policy, trust, or financial transaction. In banking, a beneficiary is often the recipient of a wire transfer or the person named to inherit an account if the owner dies. It's the answer