Refinancing Your Commercial Real Estate
If you’ve invested in commercial real estate, chances are you have a commercial mortgage. These loans will often be an integral part of the process, as they grant small businesses the opportunity to start, expand, and flourish. But debt can be a tricky thing to navigate, especially if you have personal or business-related setbacks. Whether your business is hit with some unforeseen circumstances, or you’re looking to maximize profit on your property, refinancing can help you get what you need.
Types of Mortgages
There are four main types of commercial mortgages that you may want to refinance: fixed rate, variable rate, balloon payment, and interest only mortgages. Each has their own set of pros and cons, so you’ll want to figure out what’s most important to you when choosing a loan. Fixed rate and adjustable rate mortgages deal with the interest rate. Fixed rate mortgages provide stability, as it’s easy to plan ahead with a consistent monthly payment. Adjustable rate mortgages provide flexibility, but they are subject to fluctuations in the general interest rate; if the index is low, you’ll save money, but when it goes up, your payments will also increase. Both balloon payment and interest only mortgages involve paying smaller payments over time, providing short-term affordability. The drawback is that with both types of mortgages, a large sum will most likely be owed at the end of your term.
Reasons for Refinancing
Refinancing comes in handy when business owners want to adjust terms or rates in order to relieve any financial strain. Negotiating reducing your rate or extending your mortgage could save you money in the short-term by lowering your monthly payments. Refinancing can also be an important preemptive step for those who want to avoid making a large payment at the end of their term as commonly seen with balloon payment or interest only mortgages. Not all businesses seek refinancing for some sort of debt relief, though. A flourishing business may refinance merely to make the most of their money, using the property’s equity to improve capital.
Options for Refinancing
A bank mortgage is the most popular and most recommended form of refinancing because banks offer the most variety of rates and terms. The Small Business Administration has an enhancement program that helps cover a large portion of your original loan should you run into issues paying it off. Private investors may also be a helpful tool for commercial real estate refinancing since they are less regulated and thereby have far more options to get you exactly what you need.