Business owners can refinance their commercial mortgage loans in many different ways to improve their financial outlook. Here’s a look at some of the most popular reasons to refinance a commercial mortgage:
1. Cash-Out Refinance
If a business owner has accrued a significant amount of equity in the commercial property, it may be possible to pull out a portion of it as cash to be used for other purposes. This can be an effective way to finance property repairs or improvements or even provide working capital for day-to-day business needs. These cash-out refinance loans can be paid out as a lump sum or as a line of credit to be used as needed.
2. Switch to Fixed Rate
Sometimes business owners get commercial loans with adjustable rates in order to keep initial costs down or to capitalize on the market’s low-interest rates. Yet if interest rates start to rise or when the beginning period of low rates ends, adjustable-rate commercial mortgages can become quite expensive. Plus the constantly adjusting rates can make it difficult for businesses to predict their monthly payments. A refinance loan can remake an ARM loan into a fixed-rate commercial mortgage with much more predictability.
3. Avoid a Balloon Payment
Some commercial loans come with an attached “balloon payment” – when the majority of the loan balance comes due at the end of the loan. For many businesses, making that last payment can be almost impossible, so refinancing into a more conventional commercial mortgage can save businesses from that looming balloon payment.
4. Take Advantage of Lower Rates
Reducing total loan costs is another reason business owners look at refinancing their commercial loans. When market interest rates drop dramatically, as they have in the past several years, companies can save thousands of dollars in interest and lower their payments by refinancing into a loan with a lower interest rate.
Of course, all refinance loans require fees like closing costs, appraisals and lenders fees. It is important for business owners to weigh the costs of refinancing with the benefits, but if they plan to hold on to the commercial property for many years, the merits of a refinance often make sense.