Commercial Mortgage and Apartment Loan Refinance
Commercial mortgage refinance is one of the main services offered by Commercial Loan Direct. We offer a wide selection of financial products to assist you refinance your existing commercial real estate loans. We offer conventional, agency based, and CMBS Programs, each designed to provide the most competitive financing terms based on a combination of property constraints, borrower investment and personal goals. Our streamlined lending process makes it easy to deal with your commercial mortgage refinance.
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Understanding Commercial Mortgage Refinance
When is the best time to refinance a loan?
Factors such as prepayment penalties, goals of the borrower, market rates, and existing loan terms come in play. Of course there's no exact formula, but below are some thoughts on how you might analyze your commercial loan refinance.
The Discounted Cash Flow method is the traditional system used, which essentially compares the existing loan vs. the proposed loan on a Net Present Value basis.
Commercial Property Refinancing important factors:
- How the commercial mortgage refinance will affect monthly cash flow?
- What the closing costs will be?
- How much of the closing costs will have to come out pockets?
- (If increase in cash flow) How many months will it take for the savings to “pay back” the owners closing costs?
- What the principal pay down (amortization schedule) will be, compared to existing loan.
Cash FlowMost borrowers are obviously interested in improving their cash flow situation when refinancing. There's essentially only 2 ways to do this - reduction of interest rate and or increasing the length of the loans amortization schedule. That's it. Reducing the interest rates is obvious however most borrowers are surprised to learn that by spreading out a loan from say 20 years to 30 years normally reduces the borrower's payment by approximately 20%.
Borrowers that are facing a ballooning loan may find out, however that their situation will not improve. Their monthly payment may go up as markets rates change, loan programs change etc. It is often the case as well that the borrowers books are not as strong as there where when they secured their existing loan and they will not be offered the same program/rates that they previously qualified for.
Borrowers are always very concerned about closing costs, and for good reason. For example with appraisals ranging from $2,000 - $5,000, environmental reports from $1,800, processing at around $1,000, title from $1,000 - $2,000, and the bank 1% fee, it makes a lot of sense for borrowers to be concerned. On a refinance, the borrower can normally roll most of these's costs into the loan amount. In terms of out of pocket costs, the borrower should be prepared to pay the appraisal, and environmental report fees upfront. In addition, sometimes the funding bank will require the processing fee paid upfront as well.
Pay Back Time
Assuming there is a reduction in monthly payments, borrowers like to do a cash flow analysis to see how long it will take for the savings to pay back their closing costs. For example, if the new loan monthly payment is $2,000 lower and the total closing costs are $10,000 it will take 5 months for the borrower to "break even".
Principal Pay Down
Principal pay down is obviously another important component of any commercial loan. However, for most owners, especially those with highly leveraged properties, cash flow is more pressing. High debt payments versus net cash after the expenses have been paid make it difficult for the borrower to look at this in any other way.
Not sure which program is right for you? Contact a commercial mortgage expert at 1-800-687-0797 and let us help you make the right decision. Our Financial Center provides helpful tips and online tools designed to assist borrowers with the refinancing of their commercial properties.