Commercial Mortgage Refinance
by bill
Filed under Commercial Lending Information
Over the last decade, 30 year fixed loan programs, 3rd party report costs and commercial refinance programs have been added as additional loam programs that can offer pleasant surprises to those who wish to purchase a commercial property.
With the increase in options, commercial mortgage refinance programs have become attractive regardless of whether the borrower seeks to restock his or her own financial investment for third party fees or if he or she wishes to max out the allowable lender proceeds, the choice is that of the borrower.
An increase in the loan amortization schedule from 20 to 30 years will often enhance the borrower’s benefits with an increased cash flow of 20 percent or more. For businesses that have a tight cash flow or that are highly leveraged investment properties, this can have a huge impact overall. For example, a million dollar loan with a 7 percent interest rate could mean a difference in payments of $13,191 per annum.
Commercial mortgage refinance generally offers the borrower a lower interest rate. This has the potential to save him or her hundreds of thousands of dollars during the course of the loan. That is, unless the borrower faces an adjusting rate or balloon loan. The majority of the borrower’s rate options are dictated by the overall market. It is the responsibility of the buyer to find his or her best loan program.
Even though it stands to save the borrower money over the long term, commercial mortgage refinance is not an inexpensive endeavor. The title alone can cost as much as $2K. Appraisals and environmental reports can cost anywhere from $800 to $2K. Then, there are the lenders processing costs, which usually run close to $1K.
The borrower can benefit by doing a simple analysis to determine the break even point of the refinance. In doing so, he or she can compare the costs among multiple lenders as well as their existing banks. The borrower will frequently find that the third party costs are less with his or her existing bank. However the overall costs can be lower with a competing capital source.
Banks, brokers and lenders tend to underestimate the process needed to close the commercial mortgage refinance deal. Typically, a loan can take anywhere from 75-90 days to close, unlike the frequently advertised time period of 45 days. Additionally, industry insiders rightfully claim that until a commitment letter is signed, the loan process does not officially begin. This is also true of any fees for third party reports. They must be paid in full before the loan process starts. The borrower, however, may see things differently.
From the standpoint of the borrower, the process begins when he or she makes the final decision to go forth with a commercial mortgage refinance transaction with a particular bank. This is true regardless of whether the particular bank has received the complete body of information required to make their lending decision.
This common communication error has the potential to result in an extended delay can result in a frustrated buyer.
