When thinking of a Mortgage Refinance for a commercial property, you may want to consider becoming familiar with the terminology to help understand how the process will play out. This will increase your knowledge and help you prepare for what to expect.
Long before I became involved in Commercial Financing and Real Estate Development, I would hear terms mentioned in regards to Residential and Commercial Loans and Mortgage Refinance options, ARMS, Balloons etc. I had absolutely no experience in any real estate or how to obtain a mortgage loan, so these terms were like a foreign language to me. I realized very fast without thorough knowledge of the terminology it is hard to understand what direction you will go.
If you think back to when you applied for your original Commercial Mortgage Finance, you will remember specific terminology slightly different than that of Mortgage Refinance. You had to think about the price of the commercial property, the time it will take to secure a loan this size, it is possible for the amount of time specified on the contract to run out before you get funded, protection from default on such a large loan, not to mention collateral, down payment, the lenders closing costs and so on, not too unlike a mortgage on a house.
Long before you ever dreamed of a Mortgage Refinance you had to make sure you can handle such an obligation with the original commercial loan by speaking to your Financial Advisor and your Accountant about how long your finances could carry the loan if things don’t go as planned.
It is very important to look at how closing costs will affect the equity you have been building over the years. Your situation is a little different and you will need to approach the Mortgage Refinance accordingly. You will now start looking at possible Prepayment Penalties, Cash Out Proceeds, and maybe you want to Inject the money you cash out into another property or update your current property, what is the Discounted Cash Flow, Current vs. Proposed Loan to Value Ratio.
Let’s recap what terms you had to learn before, such as 1031 Tax Exchange, Environmental Reports, what type of commercial property qualifies for what type of loan, which is a lot for one to learn, the difference between Conduit and Mezzanine Loans, and so on. Most importantly, you had to find a great Broker that offers a variety of innovative loan programs for your specific need. So now, it is time to look at Mortgage Refinance.
The terminology is somewhat different when it comes to Loan Refinance. You start looking at possible Prepayment Penalties, Cash out option Proceeds, and maybe you want to inject the money you cash out into another property or update your current property, what is the Discounted Cash Flow, Current vs. Proposed Loan to Value Ratio.
Successful Brokerage firms will want to share information with you. Remember, knowledge is power, stay informed by reading and researching your topic. When looking for a Broker don’t hesitate to ask how long they have been in business and their approval vs. denial ratio.
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