A keen interest in making smart financial decisions is likely what led you to consider a commercial real estate investment in the first place, and that mindset doesn’t end once you’ve officially acquired your first property. It’s certainly possible that there will come a time when it becomes a savvy or strategic move to refinance your commercial loan. In today’s blog, we take a look at some of the most common reasons why it becomes a financially smart move to consider refinancing your commercial real estate loan.
When To Refinance Your Commercial Loan
No two situations are ever exactly the same in commercial real estate, so you’ll really need to analyze individual factors to determine if it’s the right time to refinance your commercial loan. With that said, here’s some of the most common reasons why it could make sense to refinance your commercial loan:
-
Mortgage Rates Drop - Mortgage rates will continue to rise and fall, and if rates end up dropping low enough, it may make sense to refinance your loan, even if you have to pay some costs up front as part of the refinancing process. A conversation with your mortgage broker or simply crunching the numbers yourself using an online refinancing calculator can help showcase how much potential money you could save by refinancing.
-
Loan Flexibility - Perhaps you want to adjust to a shorter loan term with a more favorable rate, or you need to extend the length of your loan and decrease your monthly mortgage payment. You have some payment flexibility when you refinance your commercial loan.
-
Free Up Cash - This falls in line with the above point, but sometimes commercial investors will refinance and extend their current loan to significantly lower their monthly payment in order to have more cash at their disposal. Refinancing and lowering your monthly payment can allow you to have more cash on hand for other lucrative investment opportunities.
-
Avoid Balloon Payments - Many commercial loans require a larger payment at the end of the loan term. This is referred to as a balloon payment, and due to business demands, you may wish to avoid this large payment at the end of your loan term. Refinancing helps to avoid this balloon payment and can keep your business afloat by allowing you to keep making smaller payments towards your principal.
When it comes to refinancing your commercial loan, be sure to talk with a mortgage professional about the benefits and potential risks involved. While the risks are minimal, the flexibility offered by extending the terms of your loans can lead to increased costs in the long term or cause problems if your property value takes a hit and you end up underwater on the loan, but for most commercial investors, the decision to refinance ends up being beneficial to their bottom line. As is the case with anything in the world of commercial real estate, do your research and lean on the insight of industry professionals to ensure you are making a smart decision.
For more information about commercial investing, or for assistance purchasing or researching commercial property, reach out to the team at Commercial Partners today at (612) 337-2470.