Entrepreneurs that are either looking to purchase a new facility or are considering refinancing should take a hard look at the new commercial 30 year fixed that has come on the market. It provides a tremendous amount of security for borrowers that are concerned about potential rising rates in our uncertain economy.
As the name implies, the rate on this loan is fixed for the entire 30 years and fully amortizing (meaning it pays off) at the end of 30 years, just like the traditional residential 30 year fixed. Although the program is allowed with investors its designed primarily for owner occupants (business that own the facility they run their business out of) and can be collateralized against a broad range of building types, not just the normal office, industrial, retail. For example, automotive repair, restaurants, daycares, etc are acceptable.
One of the main, additional benefits is the high level of financing that the funding bank allows. 90% loan to value on purchases and up 75% loan to value on refinances is allowed. In addition, because the loan is mortised over a 30 year schedule the cash flow savings is normally significant at 20% or more compared to the typical 20 year financing that most banks offer.
The reduction in payment is due primarily to spreading out the loan, not necessarily because f a reduction in rate. It is common to see the rate higher on the 30 year though still see a reduction in the borrower's monthly payment. Many borrowers understand this and are interest in the increased cash flow especially if their business/economy is struggling. The borrower can elect to pay the mortgage down by 20% per year however.
Why haven't you heard of the Commercial 30 Year Before?"
The commercial secondary market is essentially the creator of this product and the banks that originate, fund and sell it on the secondary market rely heavily on their commercial mortgage brokers network to promote this loan, which is really done on a word of mouth/unorganized basis.
What are the cons?
As the subprime mess saturates all corners of the industry the credit criteria has tightened on this program. Prepayment penalties are higher than traditional loans as well. Most banks will ask for a 5,4,3,2,1% while this loan has a straight 5% for five year or a 10% for five years depending on the details of the loan. Interest rates right now can be anywhere from .5% less than bank financing though more normally .5% higher. All in all though this is a solid option and is an excellent program for a vast amount of borrowers.
