Making Home Affordable Program Part I The Refinance Initiative
Performing a Commercial Mortgage Refinance is normally an expensive and time consuming process that has a few, potentially expensive pitfalls. Although we don offer a “secret guide” on avoiding them, below is some thoughts on how you can better prepare yourself on the main issues.
Be Realistic About Value
Commercial appraisals normally run between $2,000 – $5,000 for properties under $3,000,000 in value. Appraisals for hotels or other similar complicated properties can be as much as $10,000. Regardless of the cost, once the report has been ordered the borrower is not going to get their money back if the loan does not close.
Lower than expected property value, seems to be more of an problem with owner occupied properties as investment properties tend to be easier to predict value (due to the income stream). Further, owner occupants seem to have more of an emotionally attachment to their property, having put much time and money into repairs/alterations and have run their business’s out of the building. Whatever the case may be, the results of over stating value are almost always the same – a canceled loan or having the interest rate bumped up.
So, you might want to ask the lender/bank what your rate would be if you do not hit the predicated value. It should be easy for the bank representative to tell you. For example, if your predicted Loan to Value is 60%, find out, before you write a check and sign a Commitment Letter, what the rate would be if your loan to value came out at say, 70%.
Upfront Fees
There’s really no reason why you have to pay upfront fees to a broker or lender to work on your loan. There are probably some exceptions to this that make sense. For example, you have a very complicated loan or one that has a small chance of success and you’re essentially paying a consulting fee. But on your typical commercial mortgage refinance the only time you should write a check is to pay for third party reports when you sign a commitment letter.
Prepayment Penalties and Lock Out
Basically all commercial mortgages have prepayment penalties. These fees, that the borrower incurs if the loan is paid off prematurely, range from 3% to 10% of the loan amount and are in place normally for 3 -10 years.
Lock out fees can be much more expensive and should be avoided if possible. Basically the lender demands all interest that would have been earned during the lockout period. For example, if the borrower had to sell 1 year into a 5 year lock out he would owe ALL 4 years worth of interest…
So, obviously try to match your prepayment penalties with your expected holding period and for your fixed period of your loan. It is not unheard of for the borrower’s prepayment period to be longer than the fixed period of their loan. Also, keep in mind your prepayment penalty is often negotiable and many commercial mortgages are assumable as well.
Long Term Plan
Obviously it’s very difficult to accurately predict/plan for the future, but it may be wise to be conservative with the fixed period of the loan. We have seen many borrowers elect to go with a shorter fixed period due to the lower rate (greed), only later to regret this when their payments jump when they hit the adjustable period.
Watch the video related to refinance cash out
Hello Friends, So many questions, so much uncertainty still. As much detail as there is on the US Treasury’s website and the press releases that went out Wednesday, things are still clear as mud! Mainly due to the fact that the investors and servicers of these new potential mortgages are not required and most likely, in a lot of circumstances will not want to touch some of these loans. If you go to www.neliton.com, I have a Q & A format of the top anticipated questions on the refinance …
Help answer the question about refinance cash out
Can you still refinance with cash out if your home has been off the market more then 3 months. ?I have a balloon payment coming up in Sept 09 and would like to refinance with cash out. The bank told me cash out at 80% of LTV and at least 3 months off the market. Now they are changing there tune. They said that since the house has not been off the market for more then 6 months they have to drop my LTV to 70% are they legally aloud to change there tune after I have payed my lock in rate fees and signed paper work.
About Author
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He specializes in Commercial Real Estate Loans between $100,000 – $5,000,000. Offers unique loan programs such as Commercial Second Mortgages, Commercial 30 Year Fixed, 90% non SBA financing, Commercial Equity Loans. 248 885-8797 or Commercial Mortgage Refinance or SBA 7a Loan Commercial Real Estate Loans
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August 3rd, 2009 at 9:06 am
it all depends on where your current loan to the value is at this point. The most cash you can take out at this point is with an FHA insured note and that is 85% loan on the value. If you owe that much or more as the rules changed over the last year then you have no shot at a HELOC or a refinance. If you owe less than that then yes it is a great time to get cash for improvements
I am a mortgage banker in TN
August 3rd, 2009 at 10:05 am
I seriously doubt it, my Wife and I just did that 2 months ago and our loan officer told us that they were not even looking at anyone with scores under 720.
August 3rd, 2009 at 2:18 pm
there are multiple limits of various kinds.
1st. if you cash out more from property A than your remaining equity in property A [original down payment or basis less accumulated depreciation plus capitalized items during your holding period less salvage received or loss deducted], the excess is taxable income in the year received.
Depending on depreciation recapture provisions, some or all of this may be ordinary income.
2nd. yes, all the interest paid on debts on Property A would go on Schedule E.
3rd. yes, the net loss on Property A [including depreciation] would offset the net income on Property B.
4th yes, there is a limit on losses from passive activites — and a separate schedule on which to figure it out [see forms at irs.gov -- Limitation on Passive Activity Losses -- I think that's what it is called].
5th. points, costs, and fees paid to refi the debt on Property A probably have to be capitalized and amortized over the life of the new loan. [The loan statements will include them in the capital paid figure]. The similar remaining balance of points, fees, and costs that you are currently amortizing for the current loan on Property A are probably deductible as financing expense.
Atm, that's all I can think of…
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And that's all if you can find a cash-out refi of an investor property in the present loan market. My offhand guess is that you'll not be allowed to lower the equity to appraised value ratio beyond 20% at least — possibly more depending on market. AND, I'll bet the lender will want an unconditional personal guarantee of the loan as well.
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Are you sure you don't want to hire an accountant to figure out this stuff??
August 3rd, 2009 at 4:27 pm
It all depends on the difference in the value of the place and the amount owed on the loan – that is what's considered your equity. Many banks will only loan up to about 80% of the equity, but a few go higher. For example, lets say you owe $50,000, but the place is worth $60,000, then you have $10,000 in equity. Take 80% of that and you have about $8,000 you could loan against.
I found a great article about it on
http://www.payoffmyloansnow.com
August 3rd, 2009 at 8:50 am
Nice work. keep it up. mean time come for social media marketing for esteembpo**com
August 4th, 2009 at 8:44 am
Once you get the house back into good shape, and the value is back above where you financed it in the first place you can get it reappraised and start over on your new loan for the unit. Or get a second mortgage.. Time factor is not a big deal,, the equity in home is the deciding factor.
August 5th, 2009 at 12:01 am
A refinance with cash out would save you money in the long run. The interest rate would be lower for a 1st mortgage.
If you refinanced for a lower interest rate, you would be required to pay for the refinance and other closing cost.
Now if you turned around immediately and got a second mortgage or a Home Equity Line of Credit (HELOC) you would once again be required to pay for the loan as well as any related closing cost. On this 2nd mortgage the interest rate would be 2%-3% higher.
For any legal or tax matters you should consult with your attorney or tax consultant.
I hope this has been of some use to you, good luck.
"FIGHT ON"
August 5th, 2009 at 2:49 pm
If you read your agreement, you will undoubtedly see that they have included language along the lines of "the bank has the right to change these (the refinance rules) conditions from time to time with proper notice."
In effect, what you signed gave you the right to refinance under certain conditions, but those conditions can change somewhat.
August 6th, 2009 at 7:35 am
They go after your other assets, accounts, property and wages until you have repaid all of the money they gave you, interest on it and the legal expense of getting their funds returned to them.
Eventually you will pay them back.