When is the Best Time to Refinance a Bad Commercial Credit Loan?
No one wants a bad interest rate on their commercial mortgage. But there are times when that is your only option. While bad rates can make the loan unprofitable and difficult to pay back, you may still want to take a high interest loan if:
- You plan to sell the property within a few years.
- You found a great deal on the property and have to act now.
- You are confident that the revenue you’ll generate will more than make up for the rate.
One of the good things about even the highest interest rate loans is that if you work on your credit and build up your case for a lower rate, you can refinance the loan after a few years and the effects of that high interest rate will not last long enough to make a significant financial impact.
But when is the best time for a bad commercial credit loan refinance?
Fees First
First and foremost, you have to consider the fees. Every loan has fees, and at CRE Lender we know that even if we connect you to the lowest priced lender out there, you’re still looking at some fairly hefty fees that are standard practice in the commercial lending industry.
Lowering your APR will not cover the cost of the upfront fees right away. For example, if it costs you $1,000 to refinance, and the rate saves you $300 a month, it will still take you 33 months (almost 3 years) before you’ve paid back the fees. If you sell the property beforehand you will actually take a loss. So it’s important to keep these numbers in mind as you’re searching to refinance a bad credit commercial loan.
APR Differences
Furthermore, slight drops in APR may not be worth the fees it costs to refinance over the course of the loan. In some cases the fees can be substantial, and if the APR difference is only a small percentage it may take over a decade or more to make up the difference – you’d save money in the long term, but you’d hamstring yourself with the property.
Experts generally recommend you refinance then the difference in interest rate is at least 2%, though some say that 1% is fine in some circumstances. Of course, if your first loan was a bad credit loan, then a bad commercial credit loan refinance may easily have that APR difference if you’ve been able to both lower your LTV and improve your credit score.
At CRE Lender, we connect you with lenders and mortgage brokers that are more than happy to respond to your refinancing needs and try to find you the perfect replacement loan. We are more than a lender. We’re CRE Lender – the nation’s leading lending connection service. Sign up today to get started.
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