Should I Refinance My Commercial Mortgage?

With interest rates as low as they have been in years, everyone is asking us, “should I refinance my commercial mortgage?” Experienced real estate investors often use refinancing as a means to reap the equity in their properties while simultaneously cutting their costs via lower interest rates. These savings also tend to increase if you have multiple properties appropriate for refinancing into a single portfolio. Several excellent reasons exist to shop around for a commercial mortgage refinance, as the downsides are few to none. Sure there are upfront costs and fees, but these fees are payable over a surprisingly small amount of time. We’ll show you more below.

1. Lower Interest Rates

One of the very best times to refinance a commercial mortgage (or even a residential one) is when interest rates drop. The lower rates reduce your long-term debt, along with your monthly payments. Current rates according to Bankrate are as little as 2.500% for a 30 year refinance. A few years ago, that rate was anywhere from 4% to 5%, making switching to this rate well worth the cost. Your first step is to find out your current interest rate and what kind of rate you can get now. You should also know what type of loan you have, such as 30 years, 15 years, etc.

Another benefit of lower interest rate loans is taking out a commercial mortgage to make improvements to the property. You can then do items like justify rent increases, price increases, inventory expansion, or whatever your property needs.

2. To Replace an Unfavorable Loan

You may have been desperate for a commercial mortgage back when you first took out the loan. These can come with highly unfavorable terms such as an adjustable-rate mortgage. Those mortgages are well and fine, but interest rates won’t stay this low forever. They will come up, and so will your mortgage. Another loan you probably want to escape from is the balloon payment mortgage in which you, at some time, will be required to pay a large lump sum well into the thousands of dollars to stay in compliance with the loan. A commercial mortgage refinance helps you avoid it all and save money.

3. Consolidate Other Mortgages and Debt

You may also combine your many commercial properties into one new commercial mortgage. The strategy can reduce your portfolio’s risk by balancing out your weaker properties with the stronger ones. Besides, your new larger commercial mortgage can offer more you more favorable terms, along with a considerable reduction in fees.

4. Be Sure You Qualify

Just because you want to refinance your commercial mortgage doesn’t mean you can or should. You should have had the property for at least 12 months before seeking out a refinance. Here are the steps that you may take when shopping for a commercial mortgage:

1. Business Credit Assessment – Just as an individual has their credit score and history checked, so will your business assets be to ensure you can pay back the loan.
2. Credit Check – Just as with an individual score, lenders will run your business credit score. Often this is accomplished with FICO SBSS, Experian, and PAYDEX. The desired score is at least 140 to 160.
3. Bank – Banks will review the value of the property against your net operating income to see if you bring in enough income and do so regularly.
4. Type of Refinance – Types of refinancing include a full amortization of up to 25 years, a 10-year loan with a balloon payment, or other.

5. How to Find Someone to Refinance My Commercial Mortgage

The first step is to check out a commercial mortgage with your bank. They will often offer you a reasonable rate as an existing customer. However, it would help if you shopped around but keep your bank’s offer in mind. You will want to ultimately go with someone knowledgeable on commercial mortgages and the best terms for the area. Good commercial mortgage companies will also have excellent reputations in their community and lots of satisfied clients. Be sure to get all information on items such as upfront fees, fine print, cost of an appraisal, as well as closing costs before you put pen to paper.

More on Should I Refinance My Commercial Mortgage

Shopping for a commercial mortgage can be exhausting, no matter what your situation. We recommend you research various lending agents and loan types to ensure you go with what’s best for you. We suggest consulting an expert to guide you through the commercial mortgage process to ensure you are getting what’s best for your business.