Understanding All Aspects of Your Loan
In a stable mid-cycle environment interest rates are typically first on a borrower’s priority list when seeking a new loan. Today borrowers are navigating a raising rate environment clouded in uncertainty where it is nearly impossible to focus on anything other than rate—that may be a mistake.
Procuring loans from a regional or large commercial bank with average rates may seem logical, but are you limiting yourself to stock loan products versus loans best tailored for your property’s business plan? While many banks have quality loan programs, how do borrowers really know if a specific loan program is best for them?
Lack of exposure to other institutions’ offerings means you do not really know if a better product exists elsewhere. This is where engaging with an advisor who has the flexibility to locate loans structured to your needs is very important.
Here are some examples of choices borrowers are facing today:
Structure Around Tenancy
The property has 25% vacancy, but cash flows at 1.50x debt service.
- Many lenders will pass or offer bridge finance.
- Several lenders will fund 10-year fixed-rate debt in this situation and not require reserves or holdbacks.
Long Versus Short Term Loan
The borrower wants long-term, but the lender only offers 3-, 5- or 7-year fixed-rate debt.
- Commercial banks mold customers’ needs to their services.
- There are plenty of lenders offering 10-, 15-, and 20-year fixed-rate debt amortized over 10, 15, 20, 25, or 30 years.
The borrower wants a 10-year fixed-rate loan with the ability to sell/refinance in years 6 thru 10.
- Many lenders only offer preset prepayment options.
- There is a market of lenders offering 10-year fixed-rate loans with low to no prepayment penalties.
Timing of Rate Lock
The borrower wants to lock at application versus soft rate lock or lock at closing.
- Many lenders will only lock rate at closing
- A qualified advisor will identify lenders who will rate lock at application. This is vital as we are in a volatile rate environment with large swings in rates.
Key to finding the right loan is working with an experienced advisor who can underwrite the loan request and then utilize their deep lender relationships to market to key lenders in a short amount of time in turn producing the best option for their borrower’s need.