ARM on Commercial Loans?

2 Replies

Hi -

I am new to real estate investing and in the middle of purchasing my first commercial property through a broker. Is it common for commercial properties to have adjustable rate mortgages as well as prepay penalties?

If so, what is the average margin? they are quoting me 2.5%.

thanks

@Chris Branca  

Short answer, yes; balloon payments, ARMs,and prepayment penalties are all common in commercial loans. 

This post talks about prepayment and this one ARMs.

The premium depends on a lot of factors. What's it indexed to would be my first question.

thanks for those resources.

indexed to FHLB.

This broker is basically telling me the rate isn't going to matter regardless of if we are financing 70% or 80% LTV.

Financials are very strong (not sure if this matters or not).

This morning he sent over his "Loan Broker Agreement" and in it had the index value terms, which made me raise an eyebrow.

I have never done a residential mortgage, let alone commercial - so that is why I am asking.