Real Estate Business and Investing

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from the Peter Serafinowicz Show Christmas Special

When is the best time to refinance a commercial loan? Factors such as prepayment penalties, goals of the borrower, market rates, and existing loan terms come in play. Of course there’s no exact formula, but below are some thoughts on how you might analyze your commercial loan refinance.

The Discounted Cash Flow method is the traditional system used, which essentially compares the existing loan vs. the proposed loan on a Net Present Value basis. However we have found that most commercial property owners are really interested in:

1. How the refinance will affect their monthly cash flow?

2. What the closing costs will be?

3. How much of the closing costs will have to come out pockets?

4. (If increase in cash flow) How many months will it take for the savings to “pay back” the owners closing costs?

5. What the principal pay down (amortization schedule) will be, compared to existing loan.

Cash Flow

Most borrowers are obviously interested in improving their cash flow situation when refinancing. There’s essentially only 2 ways to do this – reduction of interest rate and or increasing the length of the loans amortization schedule. That’s it. Reducing the interest rates is obvious however most borrowers are surprised to learn that by spreading out a loan from say 20 years to 30 years normally reduces the borrower’s payment by approximately 20%.

Borrowers that are facing a ballooning loan may find out, however that their situation will not improve. Their monthly payment may go up as markets rates change, loan programs change etc. It is often the case as well that the borrowers books are not as strong as there where when they secured their existing loan and they will not be offered the same program/rates that they previously qualified for.

Closing Costs

Borrowers are always very concerned about closing costs, and for good reason. For example with appraisals ranging from $2,000 – $5,000, environmental reports from $1,800, processing at around $1,000, title from $1,000 – $2,000, and the bank 1% fee, it makes a lot of sense for borrowers to be concerned. On a refinance, the borrower can normally roll most of these’s costs into the loan amount. In terms of out of pocket costs, the borrower should be prepared to pay the appraisal, and environmental report fees upfront. In addition, sometimes the funding bank will require the processing fee paid upfront as well.

Pay Back

Assuming there is a reduction in monthly payments, borrowers like to do a cash flow analysis to see how long it will take for the savings to pay back their closing costs. For example, if the new loan monthly payment is $2,000 lower and the total closing costs are $10,000 it will take 5 months for the borrower to “break even”.

Principal Pay Down

Principal pay down is obviously another important component of any commercial loan. However, for most owners, especially those with highly leveraged properties, cash flow is more pressing. High debt payments versus net cash after the expenses have been paid make it difficult for the borrower to look at this in any other way.

If you are interested in learning how to refinance a home loan, then you should be familiar with that there are a number of important things you are going to have to take into consideration. In the end, in order to make intelligent choices regarding the issue of refinancing a home loan and related matters, you have to be an informed consumer, and this means making yourself as knowledgeable as you can on the matter.

Principally, refinancing your mortgage means taking out a new loan to pay off the original loan that you took out for your mortgage, and in the end the specific purpose is to save by having lower interest rates and as a result paying less in monthly mortgage payments.

It is general knowledge that to get the best in refinancing you will have to make comparisons regarding various lenders although it is also something that can cause a certain amount of misunderstanding. Nevertheless, you will still need to look at different lenders and judge against rates, points as well as fees and also be conscious that even though the rates of interest may be low, it still does not assurance the best option and may even not be the best home loan mortgage refinance.

One more main reason that people refinance home loans is to include a chance to shorten the term of their mortgage, and the prospect to tap a home’s equity in order to finance a large purchase is another common reason.

Securing a low interest rate is unquestionably the most general of all reasons, and as well the most understandable. Reducing your interest rate will not only facilitate by saving you money overall, but as well it increases the rate at which you build equity in your home, and can still reduce the size of your monthly payment, which is great, in particular if you have a lot of other bills that you have to worry about as well.

There are certain situations in which refinancing your mortgage can be amazingly beneficial, but it is essential to understand that this is not true for all situations, and so you need to think about a few different things in order to determine whether refinancing a home loan is a good idea for you or not.

For example, refinancing a home loan would be favorable for you if purchased your home at a time where interest rates were higher and you are now considering refinancing at lower rates. This is for the reason that you will end up saving money by doing so, and so obviously it would be advantageous to you.

Everyone who is interested in refinance loans ought to know about how best to reduce the amount that needs to be paid because it will help you to save money in the process. In consequence, you need to take a peek at your own credit report, see about your current loan, exercise caution about the loan that you agree to, ensure that there are no closing cost refinance loans which frequently belie the claims made by lenders, stay away from paying for appraisal fees or even application fees particularly if your credit history is good, and in conclusion, makes sure that your repayment does not last longer than the lifetime of the product that you buy.

A significant step you need to take when taking into account refinance loan is to have your credit report copy on hand so that you can fix any errors present in the credit report and so lower how much the loan is going to charge you. Subsequently, you must peruse your documentation that accompanies your existing loan and find out if there are charges for prepayment penalties since some companies may ask you to pay fees for leaving them despite the fact that many will also not enforce this clause when you refinance with them.

In any case, prior to selecting refinance loan be certain that you don’t agree to loans that have accompanying pre-payment penalties because there are many refinance loans that do not have such conditions. Along with, be careful not to accept tempting offers that have need of that you accept pre-payment penalties because of the accompanying lower rates of interest offered. It is at all times better to make an informed decision and veering towards the deal in which there is visible profits to be made will always be a better idea.

In addition, there are clear to be closing cost refinance loan which will usually mean higher rates of interest as this is a means for the lender to create money which is why they generally make use of pre-payment penalties. Another feature you should consider regarding refinance loan is that if your credit history is good in that case there should be no need to pay application as well as appraisal fees, and in case a lender asks you to pay these fees, you would be better off looking for refinance loan from elsewhere because there are many lenders who will not charge you other than the recording fees that are merely a small amount that you should not mind paying.

Last but not least, it is by no means a good idea to borrow for longer than the product you want to purchase will last you since otherwise you will end up paying for something that has lost its worth.