Is It Possible To Apply For A Short Term Mortgage For Business Owners?
As a business owner you may have to make several crucial decisions whenever you wish to apply for a business loan. Many times, people go with what they know and take a loan without considering its pros and cons. They cannot determine whether the loan type will serve them better or not. As a business owner, you should remember that the loan term is just as crucial as the amount and the interest rate. Depending on the term required, you will find short and long-term mortgages. Though they both have similarities, you need to learn their distinct and beneficial characteristics.
If you research the market, you will notice that the interest rate of short-duration mortgages is higher than the long-term mortgages. Their structure is different from the long-term one as you need to repay the money quickly with a lump sum payment. Though the payment seems intimidating, a short-term loan is a viable option and offers several advantages.
The meaning of short-term mortgages
Any loans secured by real estate that has a less than 1 year loan term period are known as short-term mortgages. As this loan type gets repaid within a shorter time, it requires a higher monthly payment. However the interest rate can be higher than other types of loans. Unlike other mortgages, this option enables the borrowers to obtain funds quickly and exit out of the loan in a short period of time.
The working method of short-term mortgages
As a borrower, you will be expected to make monthly payments to cover the principal amount with interest, however some short-term mortgages can have the interest capitalised and repaid at the expiry of the loan. The long term mortgages act the same as the short-term mortgages with monthly payments, however the term is much longer up to 10 years in some cases.
Though you can afford long-term mortgages, the shorter ones will save your capital in many ways. When second mortgage loan lenders determine the rate, they may charge interest at a monthly rate however the loan term can be as short as one month due to its short-term nature. As a result the rate may be higher but you can obtain funding very quickly without the hassles that are associated with long term mortgages.
The benefits of short-term mortgages
Short-term mortgages have multiple benefits. So, while considering mortgage terms, potential business owners must consider their resources and requirements to set themselves up for success. The information below will help you determine why applying for a short-term mortgage is feasible for businesses.
Interest Rates
A short-term mortgage may cost less in the long run because you are only paying interest on the months the loan is outstanding, although the interest costs may seem high at the start, if you were repaying the loan over a much longer term you would end up paying substantially more and your cash flow could be affected. When considering a short-term mortgage you must always weigh up the total cost involved and do a cost benefit analysis, if the loan is going to help your business make money then the interest rate is irrelevant.
Offer Predictability
You can determine where your finances will be after some years or in the coming years. In that case, a long-term loan can make managing cash flow difficult due to its payment period. You need to repay the money continuously regardless of your economic situation.
But this will not happen in short-period loans. It offers predictability as you are required to pay the sum within a few months. If your business is struggling or has cashflow issues you can capitalise the costs of the loan and pay the funds back in a lump sum when your term expires.
Save Money
You can save a decent amount if you borrow a short-term mortgage. Since you do not have to pay the money with a higher interest rate for more years, you can have absolute peace of mind and concentrate on your business more. Hence, it is a beneficial option to earn more profits and save for the future.
Build Equity Quickly
If you are paying the principal loan amount quickly, you can create additional equity. You can expand your business, launch new products, consolidate debt, and many more if you borrow a short-term mortgage loan.
Improve Credit Score
Getting a short-term loan and paying it off on time is a beneficial option for boosting credit scores quickly. As you do not have to pay higher interest amounts for several years, you can improve the credit rating to help you to grow your firm business and assist you in getting a loan in the future.
Faster Process
Unlike banks and other loan types, short-term mortgages require less processing time. As a result, you will obtain the money much quicker, in as little as 24 hours in some cases.
Final Thoughts
Many people think that short-term mortgages are not beneficial as they have to pay a higher monthly payment or higher interest rates, however as long as taking the loan is going to help you make money in your business then the answer is an easy one to make. If you have any doubt and cannot determine what type is best for you, it is advisable to speak to a financial advisor before applying for any.