Commercial Loan Refinancing

Commercial loan refinancing, just like residential refinancing, offers a variety of benefits. These include lowering the interest rate, cashing in on equity, and consolidating debt. It is important to weigh the pros and cons to make sure the outcome will be better in the long run before making the commitment to refinance. The programs offered are much the same as the programs available to the homeowner. Refinancers may choose from a fixed-rate in terms of five years, ten years, 15 years, and 20 years. A fixed-rate loan would be the most economical in the long run given the current interest rates, which are the lowest they have been in 30 years.

Other options for commercial loan refinancing include ARM loans, or Adjustable Rate Loans, in which the borrower benefits if the interest rate falls at the time of the adjustment. Likewise, if interest rates rise, the borrower will lose out. Adjustable Rate Loans are available with adjustment dates of as often as once monthly to every five years. If considering an ARM, the longer the adjustment period, the less financial risk.

Balloon loans are yet another option when considering commercial loan refinancing. A balloon mortgage is a type of fixed-rate mortgage loan. The principal and interest are amortized over a longer period, usually 30 years, than the actual term of the loan. For example, a 5-year balloon mortgage has a term of 5 years, but the payments are calculated as if the term of the loan were 30 years. When choosing a balloon loan, at the end of the balloon period, the outstanding balance must be paid off with a lump sum or it must be refinanced for the remaining 25 years.

Commercial loan refinancing can incur a great deal of fees and closing costs just as if it were a new loan. Do research and look for lenders who offer no "junk" fees and no hidden closing costs. A very important element is the appraisal. Keep in mind that it can take between six to eight weeks, but it is said that good things come to those who wait. Remember, in the Bible, we are reminded "But they that wait on the Lord shall renew their strength..." (Isaiah 40:31). All commercial properties are unique and unlike a residential property, a commercial property is not usually common to the surrounding area; therefore a very thorough appraisal is key. Commercial appraisal costs usually begin at $1200 while residential appraisals are commonly between $275-$325. It is crucial to have a mortgage company with a high level of experience in the appraisal process as well as the lending process.

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