When do you begin the refi process for a commercial mortgage?

Question

When it comes to a commercial mortgage, do you just wait until a couple of months before the mortgage reaches the maturity date before looking into refinancing or do you start the process within a year before the maturity date?

I have heard of some investors not even waiting the 5 years on a commercial mortgage to refinance and as soon as they are able, they immediately do a refi.

Robin Simon · Answer

You should certainly start the process earlier than maturity, especially at the very least within a couple months of the maturity date - there can always be things that cause delays and pushes and even missing the maturity date by a couple weeks can have harmful consequences (since it will technically be a default / missed payment even if the lender is OK with it).

Also, commercial loans even with the strictest prepayment protections / lockout periods will almost always have at least a 3-month open period prior to the Maturity Date

Caroline Gerardo · Answer

What type of property?

In advance: know what credit score, income, and equity are needed before you purchase to be able to achieve this every five years.

Caroline Gerardo · Answer

10 unit multifamily is considered a small commercial loan, which limits your choices.

Office is a different type of loan. You need high occupancy for office which in today's market is not always the case.

5-8 units you can get 30 year terms. Ten units it will be either due in five or seven years.

Erik Estrada · Answer

If it is a 10 unit building you can still do a 30 year fixed loan on it. The rate will be high though.  I would suggest to look at a refi 6 months before the loan matures or seeing if you can extend with your current lender. CRE lending is pretty tight so finding the right lender will be key.

Ravi P. · Answer

@Freeman Schultz

If you have a loan that is reaching maturity, more than likely the lender will extend the loan.

So to be clear if you have a 5-year balloon with a 25-year amortization. Towards the end of the 5 years, the bank would extend it another 5 years with the same and 20 years left of the 25-year amortization. The rate would typically be the prevailing rate at that time.

Unless you are cashing out equity it would be most advantageous to stay with the bank since you would only have 20 years remaining.  Refinancing with another bank would start the amortization period all over.

Nicholas Palumbo · Answer

In the current environment, with rates in flux, it's best to start thinking about a commercial re-fi sooner than later if the current note is coming due. Our rule of thumb is 3-6 months. One recent example of a re-fi we closed for a multi-family building in the Bronx: the property was a 40-unit apartment building with a 10 year, $3.7m note coming due. The borrower contacted us about 4 months before the note was due. Interest rates were a bit high (but still lower than the re-set rate of the existing note at 10 pct!). Given that the borrower had given us sufficient time to complete the loan processing and clear all title conditions, we were able to arrange the financing with one of our multi-family lenders at a rate that was actually lower than the prevailing rate when the borrower initially contacted us. We were even able to save the borrower from paying the hefty NYS and NYC recording tax by arranging for a CEMA with the existing note. All told, the borrower was able to save over $200K a year on interest payments by paying off the old note and avoiding the re-set. Another illustration of the old adage "time is money."

The Money Express

www.themoneyexpress.net

Nicholas Mann · Answer

Following this post, Thanks for the input

Jacob Sherman · Answer

You want to start your refinance about 45-60 days before loan expires just to be safe . What is the scenario looking like ?

Freeman Schultz · Answer

Thank you for your response.

I am beginning to see that a you should at least be prepared a couple of months before the maturity date. There is always some type of delay or something that causes the maturity date to be missed.

I have had ddiscussions with other investors where some of them said that there is no point in actually in starting the refi process until the maturity date due because then you will have a better idea of what the interest rates will be. However, I have heard from other people that you should be prepared because you might need the money for another property.

When do you begin the refi process for a commercial mortgage?

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