Commercial Loan Refinance and Multifamily Mortgage Refinance

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When is the best time to refinance a loan?

Factors such as prepayment penalties, goals of the borrower, market rates, and existing mortgage terms come in play. Of course there's no exact formula, but below are some thoughts on how you might analyze your mortgage refinance.

The Discounted Cash Flow method is the traditional system used, which essentially compares the existing mortgage vs. the proposed loan on a Net Present Value basis.

What are important factors in refinancing a commercial loan?

• How will the mortgage refinance will affect monthly cash flow?
• What the closing costs will be?
• How much of the closing costs will have to come out pockets?
• (If increase in cash flow) How many months will it take for the savings to “pay back” the owners closing costs?
• What the principal pay down (amortization schedule) will be, compared to existing loan.

How does refinancing my commercial mortgage affect my 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 mortgage may find out, however that their situation will not improve. Their monthly payment may go up as markets rates change, mortgage 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 mortgage and they will not be offered the same program/rates that they previously qualified for.

What are the 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.

What is the pay back time?

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 mortgage. 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.

Not sure which program is right for you? Contact a mortgage expert at 1-800-687-0797 and let us help you make the right decision. Our Financial Center provides helpful tips and online tools designed to assist borrowers with the refinancing of their properties.

Mortgage Refinancing Calculator

Mortgage Refinancing Calculator
This calculator will help you to decide whether or not you should refinance your current mortgage at a lower interest rate. Not only will this calculator calculate the monthly payment and net interest savings, but it will also calculate how many months it will take to break even on the closing costs.
Enter the balance of your mortgage: (call your mortgage lender and ask for the current payoff amount)	$ .00
Enter the amount of your monthly mortgage payment: (principal and interest portion only)	$ .00
Enter your mortgage's current interest rate:	%
Enter interest rate you will be refinancing at:	%
Enter the number of years you will be refinancing for:
Enter the closing costs that will be required for refinancing:	$
This is how much your monthly payment will be if you refinance:	$
Monthly Savings:	$
Number of months to break even on closing costs:
This is how much interest you will pay under your current monthly payment plan:	$
This is how much interest you will pay under your refinanced monthly payment plan:	$
This is how much interest you will save if you refinance:	$
Net Refinancing Savings (interest savings less closing costs):	$