Commercial loan modification – is your rate too high? Do something about it. Rates have reached truly historic lows at this point. Most investors with commercial loans know that commercial rates typically hover about 1% over residential rates and normally can’t be locked for more than 7 years. In fact some banks are only willing to lock rates for 5 years due to the risks associated with holding commercial notes.

Most people with commercial loans have rates in high 6 to low 7 range because they purchased on 5-7 year locks during the “good years” of real estate in 2005-2006. It doesn’t make sense to continue to over pay on interest when commercial rates in the mid 5’s are attainable from certain lending institutions.

There are very few aspects of commercial loans that are more beneficial than residential loans, but there is always a silver lining. Commercial loans have more flexibility for the borrower. Making subtle changes to these loans doesn’t always require a full scale refinance (expensive and sometimes penalty fees). In this economic climate it can also be hard to refinance if you reach the end of your lock period. Floating a rate right now is a pretty save bet, but long term the risk is very high especially if you consider the looming hyper inflation.

If you’re paying a high rate and are getting toward the end of your rate lock it might be time to consider a loan modification. I have two commercial loans that I’ve modified this month. Here is the real shocker the total cost of the modification was only $200/loan.

The best way to go about this is to call your lending institution and mention that rates are low and that you’d like to know what they can do for you in terms of a rate and lock modification. I’m going to make up for the cost on mine in 4 months. Imagine how much I’m going to save over the next 5 years. This could be even more significant depending on how much debt you’ve financed.

If you have questions feel free to contact me via email.

Photo courtesy of doug88888 at Flickr

Disclaimer: Not all lending institutions function the same therefor I cannot guarantee your lending institutions ability to modify your loan. This is simply advice based on personal experience.

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