Refinancing a Commercial Property
Are you Considering Refinancing your commercial property? Refinancing Could Save You Money on commercial properties.
There could be a number of reasons why you may want to refinance your commercial property. Even though refinancing a commercial mortgage may entail a penalty fee if you have to break the term, it will still be of benefit to you if you refinance with a better mortgage rate and product.
If you are thinking whether or not refinancing your commercial property is a good idea consider the following:
- Consolidate debt: Running a business comes with a cost, sometimes in the form of credit card debts, loans, and line of credits and the high interest they accumulate. By refinancing you can turn these debts into one big lump sum and pay less of an interest on a mortgage than the high interest rates of other debts.
- Business growth: As your business grows so does your need for new equipment, more space and upgrades to keep up with the demands of the business. Refinancing can give you the cash flow you may need.
- Increasing cash flow: another opportunity refinancing can provide you is to get cash flow to put into other projects and endeavors you may have in mind.
Esi Ghassemi is a commercial mortgage specialist who can discuss the pros and cons of this decision and help make the process easier for you. Esi Ghassemi provides customized solutions for each business owner by taking the time to understand their business and their specific circumstances.
Who finances a commercial property?
Traditional Institutions
Traditional financial institutions in Canada include the 5 major banks: CIBC, TD, RBC, BMO and Scotiabank. These institutions are specific with what type of buildings they offer commercial mortgages to and the documentation they require from the borrower. These documents may include a passing environmental report, a report on the building condition, rent rules as well as a current appraisal.
Some banks may finance mortgage loans on low rise and high rise condominiums, retail plazas, shopping centers, office buildings, multi-unit residential and industrial properties but not hotels, schools, social clubs, car washes, restaurants and many more.
Private Lenders
Private institutions typically welcome customers that were turned down by traditional institutions. These customers may include those with poor credit, self-employed, and those that are purchasing higher risk properties. Private lenders focus more on the value of the property, the amount of the down payment and the owner’s wealth rather than the business itself.
Another way that the private institutions differentiate themselves from the traditional banks is how fast they can get you approved and require less documentation from the borrower. They are able to approve a commercial mortgage in as fast as 24 hours. The interest rates from private lenders may be a bit higher than what the banks offer but if you need a large amount of funding and do not have a chance at the bank this may be a good option for you.
I keep up to date with the current interest rates and guidelines both at the banks and private lenders. Contact me to go over these two options in depth and find out which option suits your situation better.
Advantages of Refinancing Commercial Real Estate
Lower your monthly payment
Refinancing is often done in order to reduce monthly payments. Typically, you may do this by acquiring a mortgage with a lower interest rate than the one on your present loan.
Obtain better loan terms
If you own commercial real estate, it may be advantageous to shorten or prolong the loan payback period or change the kind of loan. If you presently have an adjustable-rate loan, for instance, refinancing into a fixed-rate loan might assist provide your payments greater stability in the event that rates rise.
Avoid a hefty balloon payment
For commercial loans, balloon payments, which are large lump sum payments for the remaining balance of the loan, are a possibility. The cause is that payback terms for commercial loans are typically five to twenty-five years as opposed to thirty years for regular mortgages. You may avoid having to make such a hefty payment all at once by refinancing commercial real estate.
Borrow money tax-free
When you refinance a commercial real estate loan with and get cash out, you borrow more money than you already owe and get the difference in cash. Many investors utilize the money to either acquire additional investment properties or make renovations to the current ones.
Frequently asked questions
Can a commercial property be refinanced for an equity takeout?
Yes, Refinancing a commercial mortgage while taking money out is possible. In most cases, commercial lenders will allow borrowers to withdraw up to 75% to 80% of a property's market valuation in cash. If you own a commercial property and want to make major improvements to the property or add to your current portfolio of properties, this strategy may be a suitable fit for you.
Which lenders in Ontario will refinance a commercial property?
Commercial real estate in Ontario may be refinanced with the help of the vast majority of banks, credit unions, and B lenders. Since not all lenders provide the same loan choices and rates, let us shop around with at least three to five different lenders to acquire the mortgage that works best for you.
When Should You Consider Refinancing Your Commercial Mortgage?
Refinancing may be the best option if you want to take advantage of the equity you've built up in your commercial building, transfer to more favourable loan terms, or save money on your interest payments.
Any costs involved with refinancing my commercial mortgage?
In the case of commercial refinancing, there are often no upfront application fees needed. But after a mortgage agreement, you'll likely need to cover these expenses: The lender's arrangement fee, often known as the lender fee, broker fee, appraisal and inspection charge, and sometimes, environmental assessment cost. Typically, your monthly payment does not get affected when the interest rate increases but rather a bigger portion of the amount goes toward the interest than the principal. Lastly, if and when a variable interest rate ever starts climbing at an alarming rate, you will have the option of locking into a fixed interest rate for the remainder of the mortgage term at any time.
Does commercial real estate refinancing affect credit scores?
Your credit score will take a hit from refinancing, but it might be worth it in the long run. Lenders give preference to borrowers who have refinanced due to the reduction in interest and payments incurred. Your credit score may temporarily dip by a few points, but it will likely bounce back within a few months.
