3 Benefits of Refinancing Commercial Real Estate Mortgages

Most CRE developers will tell you that the benefits of refinancing your commercial real estate mortgages are usually more significant than the costs. Many business owners do not understand these benefits and how to utilize them best to boost the property and the company.

Cash Out or Build Out

If your property is worth more than the current mortgage value, you can use your equity to improve the land and buildings. This technique is called cashing out your equity or building out your property with equity. You will usually see this refinancing on commercial properties with tenants such as apartment complexes, strip malls, or office buildings because the owner can make necessary improvements to attract new renters or address current needs. You can use this equity to finance other working capital needs such as new equipment or staffing to keep up with demand.

Longer Terms

One of the most significant benefits to CRE developers of refinancing commercial real estate mortgages is getting longer terms or avoiding a ballooning payment at the end of a term. Longer terms will mean lower monthly payments, and you can sometimes refinance to eliminate the ballooning payment instead of pushing it back. Often, a commercial mortgage will have a balloon payment at the end of the term to keep the monthly payments lower throughout. Refinancing before that balloon payment can push the term out and divide that last payment into a new, lower-balance loan.

Lower Rates

Mortgage rates fluctuate over time, and many borrowers will have locked in a higher rate than what the current market offers. Refinancing your CRE mortgage will lock in the current rate for the new term and can save you millions throughout the loan. Even lowering your interest rate by a fraction of a percent can save you significant money throughout a ten- or twenty-year loan. For instance, a one percent reduction on a million-dollar loan saves you ten thousand dollars in interest the first year. Once you factor in how much of that is paid versus compounded, refinancing for even a tenth of a percent adds up to significant savings.

Refinancing mortgages on their properties gives considerable benefits to CRE developers. Not only can this practice secure lower rates and longer terms for property owners, but it can also eliminate or push out a balloon payment. You can even refinance your mortgage if your property is worth more than the current balance and get cash out to improve the property further.