YOU ASK:

What is commercial mortgage insurance? How different is this from private mortgage insurance?

WE ANSWER:

Commercial mortgage insurance essentially is the same as private mortgage insurance, only in the commercial level. At this level, the potential losses would be quite substantial and the insurance company has to ensure the lender that they are able to take a hit in case of the borrower's default.

Commercial mortgage insurance covers the loss of the lender for big projects such as condominiums, shopping malls, or complexes. The premiums are also substantial, but it is helpful in that it enables companies to secure financing for large projects that may otherwise not be granted.

When taking out a commercial loan for a big real estate project, commercial mortgage insurance is usually not required. Instead, the bank or the lender will require that some 10% of the project will be paid in either cash or approved securities. This portion of the project will be held in the bank's name until such a time as the completion of the project, or until the project reaches a stage that has been agreed upon by the concerned parties.

Another key difference between a commercial mortgage loan and private mortgage insurance is that the approval of the commercial mortgage loan is not based on the credit history of the borrower, or its income. Rather, the loan is evaluated based on the ability of the project to earn income. That is why commercial mortgage insurance is not required.

Unlike private mortgage insurance, commercial property insurance may be more complicated - it may need a more comprehensive study about the project, something that can only be done on a face-to-face basis, and not through the Internet. When you are looking for a company to provide commercial mortgage insurance, it is best to come in person to the insurance company.

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