Commercial Loan Terms Discussion

[Bala Krishnan]

Dear BPs,

I am a newbie evaluating loan terms from a commercial mortgage broker. I am putting the info below. Need your take on what you think about the terms here.

The property is in Charlotte, NC. I am an out of state investor in CA. The purchase price is $600K and I am looking to do a 25% down, 75% financing.

A. Term: 10 Year Term / 25 Year Amortization

B. Interest : First 5 year - 4.5% Fixed. Second Five year - Treasury Rate + 3% Fixed.

C. Prepayment Penalty: 5%, 4%, 3%, 2%, 1%, 0%

D. 3rd party Deposit: $7,500 to $10,000 to cover appraisal, environment, packaging fee, lien searches etc.

E. Loan Fee: 1.5% of Gross Loan amount.

F. Collateral: First TD on Property + Assignment of Rents

G. Service Fee: $2500

So my questions are :

1. So, in general, are these good terms? or am i being swindled?

2. I know its a dumb question but how can i estimate the treasury rate to be in 5 years?

3. Is 4.5% a good rate currently? I do see lower interest rates available for example on commercialbanc.com etc. But they all do >$1M deals.

4. Prepayment Penalty: Is this usual? If I paid up a portion every year is that also charged a penalty even though I am not paying off the whole amount?

5. I though the Loan Fee is usually charged by the bank to cover appraisal and inspection etc costs, but in this case, there is a Loan Fee + a 3rd Party deposit. This looks like I am being charged twice. Is the broker taking me a for a ride?

6. Is it usual to collateralize both the Property and the Rents? In my judgement, just a First TD is sufficient. No reason why the rents also need to be collateralized.

7. The broker wants me to send $2500 upfront even before he starts the work. He also says, by signing his agreement he would be the exclusive broker for me and I would lose the Service fee if I were to chose another deal.

Would love your take on this.