Posted by: islamicfinancingnews | July 15, 2012

Commercial mortgages are part of Islamic finance

Just as traditional Western banking practices share some basic elements with Islamic finance, residential mortgages share some common traits with their commercial counterparts. In the latter type, an individual or company obtains financing to purchase property to use for their own business or to lease to a third party, with the lender retaining legal rights to the property until the commercial loan has been repaid.

Commercial mortgages can be used to purchase any number of business properties ranging from retail and office units, restaurants and fast food outlets, warehouses and factories, to land with commercial development potential. This type of funding or refinancing can also be used to expand or remodel an existing business property.

Although requirements vary among different financial institutions, most lenders will need both a professional property appraisal to determine the market value of the retail, office or industrial space, as well as an adequate down payment exceeding 20% and usually in the average range of 30 to 40% before approving a commercial mortgage for these higher risk properties. Only when these prerequisites are met can a lender offer a loan-to-value ratio (LTV) which is usually a maximum of 75% of the value of the commercial property.

Talk to your lender about the specific rates and terms and other criteria associated with commercial Islamic mortgages.

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