Locking in at a higher rate?!?

3 Replies

This is such a simple question, but I'm interested in hearing from others who have been down this road before. Current mortgage on my commercial office building is at 4.125% fixed until August 2022, then variable at Prime +.375%. 25 year amortization. Outstanding balance of $245,000 with current value of ~$350,000. 

Three options:

1) Stay with the same bank. They will give me 5% fixed until August 2025, then variable at Prime + .125%. No fees, no appraisal. 25 year amortization. But I don't really like the bank and I get no business from them.

2) Move to a local bank with a loan officer who is referring business to me. 10 year fixed with 10 year term 5.25%. No fees or appraisal.

3) Same local bank as 2) but 10 year fixed 20 year term at 5.375%.

The property can handle the higher mortgage payment, although I'd prefer the longer term. I'm leaning towards option 3, but my brain doesn't like the idea of locking in at 1.25% higher than my current rate. I'm considering it, however, because I see inflation coming and rising interest rates along with it. And the client referrals to my accounting practice are a nice bonus.

Thoughts?

Bob Langworthy

    100% keep your current loan. 4.5 years left, ton of time. Time value of money matters. Plus the fed futures curve, current market action notwithstanding has terminal fed funds at like 2.5%, putting prime at roughly 5.5 and your rate still under 6 once it adjusts. At 25 year amort you’re paying down principal and you should take the lower rate now; the higher rate later on less money won’t hurt. Plus rates could drop or you could sell etc. 

    @Bob Langworthy Hold off on it for now, but if rates continue to skyrocket as they have over the past three months, I’d suggest going with the longer term that you prefer with the bank that refers business to you. That’s a no brainer! Support the people that support you.

    Thank you @Matt Hoyt and @Tyler Delbert . One other piece of information is that this is a long-term investment for me. I moved my accounting practice in to one of the spaces and am thrilled with the location. For now, I think I'll do the following:

    1) Run the various scenarios in a spreadsheet to see the true impact.

    2) Maintain the relationship with the second bank by referring clients to them.

    3) Be thankful for the low rate that I've got!

    Thanks!

    Bob Langworthy

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