A commercial mortgage is parallel to a residential mortgage, except the guarantee is a commercial building or other business real estate, not residential property.

In addition, commercial mortgages are normally in use on by businesses instead of individual borrowers. The borrower may be a partnership, incorporated business, or limited company, so estimation of the creditworthiness of the business can be much more complicated than is the case with residential mortgages.

Several commercial mortgages are no recourse, that is, that in the event of default in repayment, the creditor can only seize the guarantee, but has no further claim against the borrower for any remaining deficiency. The general reason for this is twofold: many laws significantly prevent the creditor from going after the borrower for any deficiency, and mortgages structured for sale as bonds give a higher priority to constantly receiving some sort of income and therefore require a clause which allows the lender to take the property immediately, regardless of bankruptcy procedures that the borrower might be going through.

Commonly, the mortgage is supplemented by a common compulsion of the borrower or a personal guarantee from the owner(s), which makes the debt payable in full even if foreclosure on the mortgaged collateral does not satisfy the outstanding balance.

Terms of a commercial mortgage

The majority of Commercial Mortgages in the United States, while requiring the borrower to simply make a monthly payment small enough to pay off the loan over a 20 to 30 year time frame, require a balloon payment (a total payoff) after a lesser time frame. The borrower most probable will try at that time to refinance the loan or sell the property. Thus there are two essentials generally to the term of a commercial mortgage loan: the length of time allowable until balloon payment (known simply as the term), and the paying off. The length of the loan can show a discrepancy from a matter of days to 30 years. If a loan had a 30-year paying back schedule, but a 10 year term it would commonly be referred to as a 10 year balloon with a 30 year payment schedule.
As an example, assume a $15,000,000 loan at 8% interest with a 30-year amortization schedule and 10-year term (a 10/30 loan) with monthly payments. The payment amount would be $110,065 per month or $1,320,776 per year if it were on a typical 360-day accrual.

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