3 Things To Know About Commercial Property Refinance
A lot of people wonder how businesses can acquire and amass a huge amount of commercial real estate assets such as apartment buildings, department stores, malls, and skyscrapers in such a short span of time. Not a lot of people understand though that they make use of commercial real estate mortgage loans to do it. Commercial mortgages often require low monthly payments, but with a balloon or lump sum to pay towards the end.
Commercial property refinancing, on the other hand, is a loan applied for on commercial property when there’s already an existing loan or mortgage. Some examples of commercial real estate are office buildings, retail stores, industrial buildings, manufacturing plants, warehouses, and rental properties. You can find helpful resources on commercial property refinancing.
Refinancing Business Property
If you’ve existing commercial real estate or you’re looking for good investments in your locality, you might want to read on some of the things you should know about refinancing commercial properties. Here are some of them:
- Types Of Commercial Mortgages
The loan you take to secure your commercial real estate is called a commercial mortgage. There are several types of commercial mortgages. Some of the more commonly offered commercial mortgages are called:
- Fixed-Rate Commercial Mortgages: This is one of the most commonly availed commercial loans because the fixed rate means the borrower will be paying fixed monthly payments during the entire loan term. However, fixed-rate mortgages usually charge higher interest rates than adjustable rates.
- Adjustable-Rate Mortgages (ARM): This is also called variable-rate mortgages. They charge lower interest rates but the risk is that you might pay higher monthly fees when market rates go up.
- Interest Only Mortgages: This loan requires the borrower to pay only the interest during the loan term, but they still have to pay the principal at the end of the term.
- Balloon Payment Mortgages: This is a kind of commercial loan with low monthly payments, but with a balloon or lump sum payment that becomes due towards the end of the loan term.
- Reasons For Commercial Refinancing
Different businesses and borrowers will have varying reasons to availing of commercial real estate loans or mortgage loans. Some even get refinancing to pay for their credit card debts and other consumer debts which are typically charged high-interest rates. Here are some of the common reasons why businesses avail of commercial property refinancing:
- Lower Interest Rates
One of the primary reasons why businesses avail of commercial property loans is that they can get lower interest rates on their commercial mortgage refinancing. If your original or current commercial real estate or mortgage loan has an adjustable-rate mortgage, when the market interest rates decrease significantly, then you can save a substantial amount of money just by refinancing your current mortgage with another mortgage at a lower interest rate.
- Longer Loan Terms
The second typical reason for refinancing a commercial mortgage is that it’s a way for businesses to avail of longer loan terms. They can reduce their monthly loan amortization payments by getting a commercial loan refinancing. They can also achieve the same result by asking for an extension of their current mortgage loan term. For instance, if they have a 5-year loan term, having it extended to 20 years would significantly reduce the monthly payments.
- To Avoid the Balloon
Another typical reason for commercial mortgage refinancing is to avoid the balloon or lump sum payment towards the end of the loan term. Most commercial loans are structured in such a way that the borrower pays smaller monthly payments during the loan term, but with a lump sum payment that becomes due towards the end. When the balloon becomes due, it can be a significant strain or pressure on your business to pay or you’ll miss your payments.
- To Get Cash Out
Everyone especially all businesses need cash. Another reason why businesses get a commercial mortgage refinance is to raise some cash. They’re able to do this if they’ve already built up what’s called equity by having made substantial payments on their loan amortizations.
- Types Of Commercial Refinance Loans
There are several types of commercial refinance loans. Investors and borrowers should carefully study the various mortgage loan types designed and offered for commercial real estate.
- Traditional Commercial Refinance Loans
The traditional commercial loan is the most common type of refinancing loan. They’re usually taken to avail of lower interest rates.
- Commercial Cash-Out Refinance Loans
A commercial cash-out refinance loan allows the borrower to take cash out based on the equity of their commercial property. Most banks require that the owner has an equity equivalent to at least 30% in the property after the cash take out. Investors who intend to construct improvements on their commercial property, usually borrow money against their equity.
- Commercial Mortgage Bridge Loans
This is a kind of short-term commercial loan designed to ‘bridge the gap’ until the borrower can secure financing from another lender who can give longer terms and lower interest rates. Most borrowers resort to bridge loans to meet pressing cash requirements or when they don’t meet the requirements to qualify for long-term commercial loans imposed by the more traditional lending institutions such as banks.
Generating Revenues Using Refinance
Refinancing your commercial real estate mortgage loans can be a very effective strategy to grow your business. For one, it allows you to tap into the financial resources of banks and lenders at rates that you can afford. They can also result in savings in terms of lower interest payments and lower monthly amortizations. This allows your business to make use of your cash for current business operations or further expansion.