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Refinancing is basically getting a new loan for your commercial property and paying of the existing one. This is done so as to have better interest rates or derive better terms and conditions from the new lender as compared to the older one. It is important to understand everything about refinancing before you opt for it. Here are all the aspects explained:
You are reading: Everything You Want to Know About Refinancing Your Commercial Property
1 Is It The Right Time To Refinance?
Timing of the refinance, that is, when to opt for refinance requires little bit of study of the market like interest rate trends and your own business condition. Generally, when there is trend of falling interest rates in the country, it will make sense to switch from an existing loan which may be at higher interest to a new one. The condition of your business is also to be borne in mind. If you are experiencing a bad phase in business or just coming out from a lean period, you may not be able to get good interest rate from a new lender.
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2 Are You Eligible?
You would be eligible for a new loan only if you have paid 50-70 per cent of the property value in the existing loan. Even if there is a lender who is willing to refinance when you have repaid only 30-40 percent, the interest rate offered to you by the new lender will be higher. Your eligibility also depends on the credit score of your company. With rising non-performing assets (NPAs), the lenders are getting strict about credit scores and anything less than a stellar credit score may not qualify these days.
3 What Costs Will Your Have to Incur In Refinancing?
There are several costs involved in a refinance. These include ‘Valuation Fee’ that the new lender will charge to assess its risks by lending to you. There will also be ‘Loan Application Fee’ just like when you apply for a new loan. If you are locked in a fixed rate loan with your existing lender, you will also be charged a ‘Penalty’ or ‘Exit Fee’. This is usually this is recovered over a period of 2-3 years with lower interest rate in the new loan. You will also have to pay ‘Settlement Fee’ to your existing lender for closure of the loan. You may also be charged ‘Stamp Duty’ by the government if the new lender assesses your property at a higher value than the previous one.
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4 Is Refinance Always A Good Idea When Interest Rate Is Lower In New Loan?
The interest rates are falling for commercial property financing for some time now but there are other things you must check out like whether the new lender will charge any ‘Annual Fee’ or conduct annual reviews or regular valuations. Any of these can offset the benefits of getting a new loan.
5 Can you negotiate a better deal from your current lender?
Sometimes refinance is made redundant when your existing lender is offering you some leeway or sops like better terms or conditions or even lower interest rates. See if you are getting any of that from your existing lender.
Source: https://ecis2016.org/.
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