| Why perform a commercial mortgage refinance? Out | | | | lender processing fees cost app. $1,000. |
| of necessity of course. Most borrowers face a | | | | It's to the borrowers benefit to do a simple break even |
| ballooning loan that forces them to investigate options, | | | | analysis to compare these costs to multiple lenders |
| spend thousands on third party reports and put in | | | | and to their existing bank if they are offering to reset |
| many hours into the process. | | | | the loan. Often the borrower finds that the third party |
| Options | | | | costs are lower with their existing bank, but the overall |
| As borrowers begin the process of researching they | | | | costs are less with another capital source than is |
| are often pleasantly surprised by the additional loan | | | | competing hard to win the borrower over. |
| programs that have become available in the last 5 | | | | Time Line |
| years. 30 year fixed loan programs, no cost (no 3rd | | | | First of all, the process to close a commercial |
| party report costs) commercial refinance programs, | | | | mortgage refinance is universally underestimated by |
| non SBA 90% financing, etc replace the traditional 5 | | | | banks, lenders and brokers. Your typical loan takes 75 |
| year balloon/20 year amortizations programs that | | | | - 90 days to close, not 45 days. In addition, there's a |
| have been the main stream for years. | | | | common communication error that frustrates all |
| Commercial cash out refinances are a common option | | | | involved. For industry insiders they argue (correctly) |
| that many borrowers elect. Whether the borrower | | | | that the loan process does not begin until a |
| wants to simply "pay themselves" back for the third | | | | commitment letter is signed and fees for third party |
| party fees or max out the allowable cash out | | | | reports are paid. From the borrowers perspective the |
| proceeds by the lender, the choice is often left to the | | | | process normally begins when they make a mental |
| borrower. Depending on the amortization period and | | | | decision to go with a particular bank - whether or not |
| existing rate the borrower can often pull cash out and | | | | the bank has received all the information they need to |
| still have a similar monthly payment. | | | | make a first round lending decision. This communication |
| By increasing the loan amortization schedule to 30 | | | | error results in a further time lag that often creates |
| years, from the more typical 20 years, the borrower | | | | frustration for the borrower and everyone else |
| often enjoys a cash flow increase of 20% or more. | | | | involved as tension can become high. |
| For highly leverage investment properties or cash flow | | | | Waiting on the completion of the third party reports |
| tight businesses this can have a tremendous impact on | | | | (appraisal, environmental, engineering, title) take a large |
| their bottom line. For example, on a $1,000,000 loan, | | | | portion of the time to underwrite and close a |
| with a 7% interest rate, the difference in payment on a | | | | commercial mortgage refinance. It is not uncommon |
| 20 year vs. a 30 year schedule would be $13,191 per | | | | for an appraisal to take 8 weeks to complete. In |
| year. | | | | addition, many traditional funding sources will wait for |
| Lowering one's interest rate is an obvious desire and | | | | one report to be completed before they will order the |
| benefit of refinancing a commercial mortgage. This can | | | | next; rather than doing all of the 3rd party reports |
| result in saving hundreds of thousands of dollars over | | | | simultaneously. |
| the life of a loan. However, when a borrower faces a | | | | Borrowers can also add a tremendous amount of time |
| ballooning loan or adjusting rate this is not always the | | | | to the process as well. Waiting on the completion of |
| case. The overall market dictates most of the | | | | missing documentation (example, uncompleted tax |
| borrower's rate options and it's up to the borrower to | | | | returns) is a common issue. Furthermore, if the |
| find the best loan program for them. | | | | borrower becomes annoyed with seemingly |
| Third Party Reports- Costs | | | | unimportant requested documentation and "puts off" |
| The costs to perform a commercial mortgage | | | | completing, the results is just additional time added onto |
| refinance are high. Appraisal's normally run between | | | | the process as lenders rarely back down from |
| $2,000 - $5,000; title is often between $800 - $2,000; | | | | requested information. |
| environmental reports are around $2,000 (phase one); | | | | |