Commercial vs Conventional loan: WWYD?

7 Replies

Tell me what you would do.

I am buying an STR and can pick between two lending options right now. I will detail both.


1. The commercial loan: Borrowing $135,000 at 4.875% for a 5-year term, 20-year amort, with closing costs being $2,000. 

Monthly payments would be around $881/mth. The interest rate will fluctuate based on the market every 5 years but let say it stays similar since I have always been able to get lower interest rates. Total P/I payments would be $211,400 at the end, plus the $2,000 closing (and let's say I have to pay this every 5 years to refinance) would be a total of $219,440.

2. The conventional loan: Borrowing $135,000 at 6.5% for the 30-year term, closing costs are around $4,950. 

Monthly payments here are around $853/mth. Total P/I payments would be $307,080 at the end, plus the $4,950 to close the first time around would equal a total of $312,030.


From my math, even if I have to pay closing costs on the commercial loan every five years, I would still save around $100K going the commercial route. I just don't see the $30/month of savings going with the conventional to be worth the $100K in the end.  

Am I missing anything? Let me know what you would choose. 

Are all other factors equal? i.e. non-recourse, yield maintenance and/or defeasance, etc? When you refinance the conventional loan are you planning to pull money back out? What is your exit strategy on this property?

No exit strategy. It's an STR. Not pulling cash out either, unless I need to down the road but I don't think there will be much equity in it by then. Depends. It's just a money maker.

The only reason I have to refinance after 5 years is that it's a balloon mortgage and I won't be paying it off at the end of the term. The mortgage lender already said it would probably only cost $600 if I go with them, I just factored in $2K at the moment because I wasn't sure. 

Originally posted by @Jai Reddy :

@Andrea Flores I've been shopping for loans and have been quoted between 3.875 to 4.25 for a 10 year fixed on a commercial loan. This is from a local bank.

Hey there. The 6.5% is on a portfolio conventional loan. I got 4.875% on the commercial, so all good here. Thanks


I would go the conventional, and that would give me the flexibility to NOT refinance when I do not want to. Yes, the past decade, interest rates have been low so you've been able to refinance at a fairly lower or similar rate. But 5 years from now, you may be in a different situation where you cannot prove your creditworthiness, or the market may be tighter in lending.