Can a Commercial Loan Be Refinanced a Second Time?
Commercial loans are generally very large loans, and every point in interest can mean thousands upon thousands of dollars in the long term. Because your profit margins are directly affected by the monthly payments you make to your loan, some borrowers like to refinance their mortgage when interest rates drop.
But refinancing a commercial loan is tricky – and if you’ve already refinanced and are interested in refinancing a second time, things get even murkier.
When to Refinance
The most important thing to keep in mind with refinancing is that the fees associated with refinancing can often be more than the amount you save. When you refinance, you’re generally charged about 3 to 6% of your principal in fees – a number that can be several thousand dollars or more. In some cases, refinancing may not provide enough of a financial benefit to go through the process. For example:
– On a $500,000 commercial mortgage at 10 years fixed with an interest rate of 5%, the average monthly payment is $5,303.
– On a $500,000 commercial mortgage at 10 years fixed with a refinanced interest rate of 4.5%, the average monthly payment is $5,181
– Refinancing a $500,000 loan may cost around $9000. Keep in mind that in some cases that costs can be even higher – over $15,000 or more.
Over the 10 year period, you’ll have saved $14640 – well above the $9000 it cost to refinance. Except the math is not that simple:
- It will take you over 6 years to recoup the $9,000. If you sell the property beforehand, you take a loss.
- It will cost you $9,000 right away. Because of inflation, that $9,000 is worth an estimated $13,322 in ten years – only a little less than you saved.
There is some value to refinancing, but the value is so little and with so much downside that experts do not recommend refinancing at all unless the interest rate drops at least 1% lower than it was when you first took the loan.
Second and Third Refinancing
The same issues hold true for a commercial loan refinance a second time. Or even a third time. Every time you refinance you’ll have to pay significantly more fees, and those fees mean that it will take long and longer to pay cover the costs of refinancing. While you may believe you’ll own your property for years and that you’ll eventually see the benefits of refinancing multiple times, once you refinance you’ll have to hold the property until loan completion or you’ll end up taking a loss.
That is not to say a commercial loan refinance is not a good idea – or even that a second refinance isn’t worth your time. It very well may be. But the best thing you can do is consult with experts and find out if it’s the right decision for you given the current state of your commercial loan. Sign up with CRE Lender today to find out more about that information and to get in touch with lenders that can help work with your loan and figure out the next steps for you.
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