Advisable Commercial Mortgage Refinancing Options

Borrowers should keep some important things in mind, if they are interested in possibly refinancing their commercial mortgage, to ensure that they make the best possible decision when it comes to their own mortgage refinancing decisions.

There are several factors that can delay a commercial mortgage refinance for a borrower. Some of the issues that can hold up the refinancing of a commercial mortgage by the lending agencies or banks are discussed briefly in this post.

Why refinance your commercial mortgage?

There are several ways of refinancing a commercial mortgage. Once implemented by the borrowers, they will improve the fiscal outlook of their business. Different factors that will motivate the borrowers to refinance a commercial capital mortgage are discussed in this post.

1. Avoiding a balloon payment

The “balloon payment” comes appended to some commercial finances in the U.S. In such types of commercial loans, the major chunk of the balance amount of the loan remains due until the financing period comes to an end. In the U.S, most businesses find it difficult to make the first balloon payment of any commercial loan.

The option of refinancing your commercial mortgage in U.S is a more preferable one, in such scenario. Refinancing your commercial loan enables the businesses to effectively bypass the requirement to make the first balloon payment in the adjustable due note or adjustable rate mortgage.

2. Fixed rate of interest

Business owners get commercial funds at an adjustable rate of interest to keep the initial cost of the business low and to systematically capitalize on the low interest rates provided by the variable / adjustable rate market.

Getting an adjustable rate of interest on a commercial mortgage becomes tedious and expensive, whenever the interest rates begin to recede or whenever the interest rates start to rise.

Several issues that can hold up your commercial mortgage refinance

1. Bank problems

Most investors / landlords never consider that banks can fail to refinance their adjustable rate mortgage, due to their future market outlook or their understanding of anticipated deflated cap rates or overleveraged borrowers / property owners. Bank conservative underwriting guideline problems may be widespread, like any business with problem in U.S, but most issues faced by banks in the U.S are lack of liquidity. Lack of liquidity is a direct result of the credit crisis. Banks are not able to sell commercial loans in to the commercial secondary market. As a result, banks have more capital tied up and less cash to refinance of the capital mortgages coming due.

2. Loan to value

Loan to value is becoming more and more important as a sub-segment to the general credit tightening in U.S. Most reputed and well-known banks and CMBS funds have decreased their loan to value standards. For example, if a borrower purchased a property five years ago with 85% financing and now you they can only get 70% financing on their commercial capital refinance and the value has decreased, they have got a problem.

To conclude

Commercial refinancing is one of the biggest money saving methods in real estate investing, but borrowers should be careful before refinancing always understanding how it can be of benefit now but also with an understanding of future capital markets and how that can play in their favor and or against them pending the current market cycle upon the due upcoming note.