As an investor or small business owner, it is important to understand that you have a number of options available to you when you need to secure additional capital or funding. If you own commercial real estate, one of the most popular options is to refinance your existing commercial mortgage.
Depending on your current situation, refinancing a commercial loan can be an important step toward achieving your long-term financial goals. However, there are several factors that you should keep in mind before you take that step. Here are a few of the main things you should consider when deciding whether to refinance your commercial loan.
Refinancing a commercial loan: timing factors
Timing is one of the most crucial elements when deciding whether to refinance an existing commercial loan. For instance, what are the current interest rates for commercial loans? If the market rates are roughly the same as your current interest rate, the savings that may be recognized down the road may not be worth the effort required to refinance. However, if current market rates are significantly lower, refinancing could be a smart strategy.
Keep in mind that many lenders require borrowers to go through a set waiting period before refinancing an existing loan. Some lenders require one full year, some require 6 months, and even others don’t require any time of “seasoning” at all. If you are past this point, and significant savings can be recognized, it could be a great time to refinance.
It should be noted here that Commercial Direct, a division of Silver Hill Funding, LLC, does not require seasoning on title. So if you took out a loan while purchasing a multifamily, office, or retail property, you could refinance that loan with Commercial Direct at any time.
Refinancing a commercial loan: financial factors
It’s important to remember that a lower interest rate won’t necessarily translate to a lower monthly payment. In fact, depending on how your loan is structured, you may end up actually paying more each month in refinancing (for instance, if you agree to a reduced loan term or a cash-out refinance loan).
Of course, increasing your monthly payments may be a small price to pay for restructuring your loan’s term to better fit your business needs or tapping into the equity you’ve built with your property. As usual, the best course of action will depend on your specific set of needs.
If your biggest goal in refinancing is to lower your monthly payment, first reserve some time for self-evaluation.
Has your credit score improved since you took out the original loan? Does your property generate more revenue? These are some of the factors that could help you qualify for a lower interest rate.
Refinancing a commercial loan: current loan factors
When it comes to your loan’s term, it’s also crucial to understand how your payments are structured. If your current loan has a balloon note at the end of the term, you will surely want to refinance well before that large payment comes due.
If you originally took out a bridge loan, you likely developed an exit plan and shared it with your lender. How close are you to executing that strategy? Will you be able to refinance with a different lender at a lower rate, or will you need to extend the loan you currently have?
If you have a firm understanding of your current loan’s terms, you’ll be in a better position to decide whether or not it’s time to refinance.
If you think a Commercial Direct solution could work for you, then now is a great time to reach out to one of our loan officers. They can give you the information you need to accomplish your financial goals.
Zack North is the Director of Marketing for Commercial Direct. As a regular contributor to a number of top industry publications, Zack enjoys writing about topics that help investors and business owners approach commercial mortgage financing with confidence.