Commercial Refinance

The decision to go forward with a commercial refinance depends on several factors. Current market interest rates, existing prepayment penalties, existing loan terms and the overall goals of the borrower have an impact. Unfortunately, there are no set answers, but below are some relevant questions you can use to help you analyze your own commercial real estate refinance.

Most commercial building owners are primarily interested in how the proposed refinance will:

1. Effect their monthly cash flow. Will there be a reduction/increase in payment? Will there be a reduction in monthly payment but a lengthening of the amortization period?

2. What the closing costs will be and how these costs will effect their equity. Are you planning on rolling as much of the third party costs into the loan as possible?

3. What the out of pockets costs will be. Will you have to pay appraisal, title, environmental, processing, broker fees? If so, how much and when will these be due? At funding or at signature of the Approval Letter?

4. How long will it take for the monthly savings of the new loan to "pay back" the owners closing costs in cases where the purpose of the commercial refinance is to reduce monthly debt payment.

Principal pay down is obviously another important component of refinancing a commercial property. However, for most owners, especially those with highly leveraged investment properties, cash flow is more pressing than pay down/amortization period.

Commercial Refinance - Example

This example compares our commercial equity loan to a traditional refinance loan. The conclusion provides a "break even" point in time i.e. closing costs vs. the monthly payments vs. expected holding period.

Owner occupied office building. Loan amount is $500,000

Traditional Loan	Commercial Equity Loan
5 Year Fixed, 25 Year Amortization	5 Year Fixed, 30 Year Amortization
7.25% Rate	8.16% Rate
$3,614 Monthly Payment	$3,724 Monthly Payment

$109 cash flow savings on traditional loan.

CLOSING COST COMPARISON	Traditional Loan	Commercial Equity Loan
Appraisal Fee	$2,500	$0
Title Fee	$1,800	$0
Environmental Fee	$2,000	$0
Processing Fee	$800	$0
Bank Fee (1%)	$5,000	$5,000
TOTAL	$12,100	$5,000

SAVINGS from Commercial Equity Loan $7,100

Conclusion: In this example, from a cash flow perspective, the borrower would save approximately $110 per month by going with the traditional loan. However, it would take the borrower 65 months or 5 years and 5 months to “pay himself back” the $7,100 in closing costs that would be avoided by performing the commercial property refinance through our equity loan. If the borrowers holding strategy is short term, than it would be obvious to go with the commercial equity loan. The opposite would be true if the borrower had a long term hold plan.

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Commercial Refinance

Commercial Refinance - Example

Commercial Refinance