Refinancing a Commercial Mortgage
There are many reasons for refinancing a commercial mortgage, including avoiding an upcoming balloon payment or to lower your long-term interest rate. But conflicts in the commercial real estate sector mean the environment has changed for businesses that want to work with lenders. It’s well worth knowing what your options are to improve your cash flow. Knowing how to go about properly refinancing your commercial mortgage is necessary for anyone considering it. Here are some tips.
- Carefully consider why you want to refinance. If you need money in hand for repairs or improvements, you may be seeking a cash-out product. If your current loan product has an adjustable rate, which makes month-to-month cash flow projections much more difficult, you will probably want to investigate a fixed-rate loan. If you have a balloon payment coming due, you will want to refinance into a new loan to avoid that liability. Knowing what your long-term business goal is will guide you as you choose a loan product and even decide whether refinancing is cost effective or possible.
- You want to prepare the documents that the lender needs to review your business. These may include tax returns, balance sheets, profit and loss statements, and a projected cash flow for the project you want to refinance. Many mortgage lenders will require a well-thought-out business plan, while others may just need to look at cash flows and the market value of the property.
- Use a debt service calculator tool to make realistic projections of whether your monthly income on the property will cover the mortgage payments for any particular loan product.
- Consider how your credit may affect the transaction and talk this over with your prospective lender. Hard money lenders will be less concerned with credit, while institutional lenders may rely heavily on credit history.
- Find out all the upfront costs of any loan you are considering. They may include appraisal fees, title insurance, environmental reports and lender processing fees
Contact a specialist at HML Investments today for more information about refinancing a commercial mortgage.