Businesses hoping to improve their financial futures may consider refinancing their commercial mortgages to take advantage of lower interest rates, change from adjustable rates to fixed rates, avoid balloon payments, or to create working capital based on a significant equity in the property. Whatever the motivation, the opportunity to refinance your commercial mortgage should be taken seriously.
Taking Advantage of Lower Interest Rates
When interest rates fall considerably, businesses stand to reduce their monthly payments, the amount of interest they owe, and reduce their debt by refinancing their commercial mortgage. This is a good and logical business decision. Saving thousands of dollars over the life of the loan, these business people alleviate much of the strain their company may put on their financial lives.
Changing from ARM to Fixed Rates
ARM (adjustable rate mortgages) make good sense when interest rates are low. With fluctuations the in market, though, can lead to exorbitant interest payments. When rates become high, refinancing gives the owners the opportunity to reestablish loans at lower, fixed rates and better savings. ARM become very expensive when the rates are high, and their unpredictability can add a lot of stress to the business’s operation. Fixed rates are consistent, dependable, and easy to maintain.
Avoiding Balloon Payments
Many commercial mortgages require balloon payments. These payments represent the bulk of the loan and can represent a hard ship on the company. Although business people understand that the payment looms ahead, this incredible expense may represent potential financial catastrophe. In some circumstances, the balloon payment will sink an otherwise well-maintained loan agreement. Realizing the hardship this payment represents, many savvy business owners act on the opportunity to refinance their commercial mortgage just in time to avoid it. Such avoidance is better made with careful planning, though, so never let the opportunity sneak up or past you.
Create Working Capital
Once a considerable amount of equity has been established, business owners may have the opportunity for a cash-out refinancing. In these agreements, the equitable portion of the loan may be paid back out in the form of commercial mortgage refinancing. This allows the company to fund repairs, improvements, and even daily operations cost. With more fluidity, the company stands to grow so long as it meets the terms of the loan.
The Bottom Line
Regardless of the situation, refinancing your commercial mortgage will translate to some costs that should be considered. Appraisals, closing costs, and lenders fees are sure to accrue, and sometimes these expenses will outweigh the benefits of refinancing. Understanding the costs of refinancing your loan as it compares to the benefits will help you to make the best decision for your business and yourself.