Commercial Real Estate Loan? Things To Consider BEFORE Prepaying

There are different types of stipulations you have to follow if you are thinking about applying for a commercial real estate loan. In this brief article you will learn about how prepayment may affect the way your loan is handled.

No one likes having loans. Well, no one likes having to pay off loans over a long period of time. For most people that invest in a commercial real estate loan, however, are usually locked into a fixed rate of interest. Based on this agreement most lenders will allow you to pay off to 20 percent of your commercial real estate loan each year. For the business owners that do not follow that rule, there are some penalties that you may face.

It may seem like a weird way to calculate, believe it or not, many business and homeowners do can do this without even realizing it. For example, say you have a home that you are using to rent out to tenants. After which you decide that you want to sell the property you could potentially pay off your loan. Refinancing is another way that many people pay off their commercial real estate loan in full, as well. You do, however, end up with another loan on top of that. Once this happens you will have penalties that follow.

If you do decide to prepay your commercial real estate loan may run into more than one roadblock

When it comes to prepayment penalties there are two different types that you may face. They are called soft and hard penalties. When a lender allows a soft prepayment penalty option you are able to sell the asset your mortgage is based on. However, if you do decide to refinance it then you have to will receive prepayment penalty.

On the other hand, if your lender gives you a hard prepayment penalty in your agreement it is a little harsher.  In this case, if you were to sell your property or refinance it you would receive a prepayment penalty either way. With this type of prepayment penalty, it makes it harder for an investor that may want to back out of their business.

There are things you can do to soften the prepaying blow that your commercial real estate loan throw you

Defeasance is something that may help you with the prepayment penalties that come with your commercialreal estate loan. Defeasance is defined as an action that reduces and eventually nullifies what you have to pay. Usually, the institution that you are dealing with will have to review your assets and decide with you are able to use as collateral to cover the penalty on your commercial real estate loan.

Once that collateral is sold the borrower receives government securities so thereafter they can sell or refinance their property. Usually, this can take a little over a month to complete, however, it is possible to ask for a quicker sell. If you do decide to speed up the process, however, you do have to pay a premium for expedition services.

Dennis Dahlberg Broker/RI/CEO/MLO

Level 4 Funding LLC
Arizona Tel:  (623) 582-4444 
Texas Tel:      (512) 516-1177 
Dennis@level4funding.com
www.Level4Funding.com

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027

111 Congress Ave |Austin | Texas | 78701    

   

About the author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true.

Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.