What is an Amortization Period?
2 min read
More often than not, it is common to take out a mortgage when purchasing a commercial property. Like residential mortgages, banks, independent lenders or private investors can all be involved in commercial real estate mortgages. However, the similarities typically stop there.
The amortization period is one component that differentiates a commercial real estate mortgage from a residential one. The amortization period is the total time it takes to pay off a loan. Commercial mortgages are usually amortized over 20 years or more and repaid in regular instalments, compared to residential mortgages that can be amortized for 25 years or more. The shorter the amortization period, the less interest you would pay; however, you must make higher payments on the principal amount.
It is important to remember that amortization periods differ from amortization expenses. Although both refer to economic changes over a period of time, amortization expenses are the costs of long-term assets that a company acquires, keeps and maintains over their lifetimes.
When in the market for a commercial real estate mortgage, it is essential to weigh your options. Consider choosing a mortgage that allows you to adjust your payment amount or schedule. This will enable you to review which amortization period works best for you and your business and make adjustments.
References
Canada, F. C. A. of. (2022, May 12). Government of Canada. Canada.ca. Retrieved October 28, 2022, from https://www.canada.ca/en/financial-consumer-agency/services/financial-toolkit/mortgages/mortgages-2/6.html
Folger, J. (2022, July 24). Commercial real estate loan. Investopedia. Retrieved October 28, 2022, from https://www.investopedia.com/articles/personal-finance/100314/commercial-real-estate-loans.asp
What is an amortization period. BDC.ca. (n.d.). Retrieved October 28, 2022, from https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-guides/glossary/amortization-period
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