Commercial loan for multifamily

13 Replies

Hello,

Can someone explain to me the process how a commercial loan on a multifamily home is finally paid off. I know thr commercial loans are short maybe 10 years and then at years you have to pay full amount of the loan or refinance. The question how you can you pay off the loan one day if you don't have to.full amount to pay off the loan so you just keep refinancing, so.is there a point where you can pay off the loan if so how?

You can get a 30 Year note if you want to go with a private lender. usually it will be 3,5,or 10 year ARM. Less hoops to jump through and rates aren't terrible either. I think its a better option than a 10 year note.

If you don't use a private loan and still a commercial loan. How do multifamily investors pay of there commercial loan with this kind of loan?

But if you refinance everytime then how do you pay off thr loan because you now have a new amount or you when refinance a commercial it isnt for the full amount like residential loan only you refinance for the amount left to pay or I'm wrong?

@Horacio Gutierrez , are you asking about the closing process?

If so, typically the current lender will provide a payoff letter stating the amount owed to them.

The closing/title company (or in some states an attorney) will escrow the funds from the new lender or sale, pay off the old lender and any other closing costs and then return excess funds. Process is similar to a SFR closing, just more document and people involved.

Hope this helps.

How do investors finally pay of there Baloon payment without having to refinance over and over?

You either pay cash and pay it off or you keep re-financing.  What I do with mine is a simple refinance, and ask the bank to keep it on the same amort schedule...ex, Originally I have a 20 year loan, at year 5 I had a balloon due.  Instead of re-starting the clock back on a 20-year amort since I was used to that payment I refinanced into a 15-year amort.  The rates will be better on the shorter terms as well.  

When you refinance at the end of the term, do not extend the amortization period.  During each term of the loan, you're paying both P&I, so you are paying down the loan.  Or, alternatively, if your cashflow is adequate to cover the payment, you could reduce your amortization at the next renewal/refi.  Does that make sense?

And, of course, you can always negotiate with the lender to allow you to make additional principal payments during each annual cycle without being subject to prepayment fees.

Commercial loans can be written any number of ways.  If you have an interest only payment then you have to refinance at the end of the term and you have not made any progress on the principal. Some loans are fully amortized over the loan term with adjustments every 5 years (e.g. 20 term/5 rate). Those would be paid off just like residential.  Some have principal paydown but still have a ballon at the end. You really have to shop for a loan that meets your needs but sure you can pay off a commercial loan.  Most people aren't in a hurry for payoff because rents go up but the mortgage not as much.

Hey @Horacio Gutierrez lets say you have a 10 year loan that is amortized at 30 years. Make your regular payment, but after you have some reserves built up, pay more on your payment. In other words, if your payment is $2,400 per month, start paying $3,000. If you have extra money from the cashflow, maybe pay $3,500 per month sometimes. So that when your loan for 500k comes up in 10 years you will NOT owe 400k you might owe $320k or even $250k. But yes you will have to refinance the 250k. But maybe do a shorter amortization so that the payments will be a little higher and you will pay down the loan quicker before the next 10 year refi. Also, in 10 years the property is probably going to be worth WAY more than the 550k or 600k that you paid for it.

I’m just stepping into the commercial/balloon loan thing as well.  It seems sketchy at first knowing they could call the note in 5 years. Especially not knowing where rates will be to refi.  I think it’s just how it’s done.