8 Essential Commercial Mortgage Refinance Tips and Tricks

Mortgage rates have been on the rise recently, but current commercial mortgage rates are still low compared to previous years. If you have an adjustable-rate mortgage and interest rates have dropped, refinancing your commercial mortgage can be an effective way to reduce your mortgage costs.

One of the biggest benefits of refinancing commercial property is that it can result in a lower monthly mortgage payment. Lower payments mean you can have greater cash flow, which can alleviate some of the pressure on business owners. They will have more cash on hand to manage other recurring expenses, explore growth opportunities, expand marketing or promotions, hire additional staff, or make other business investments.

And the big advantage is that you can access all of these opportunities without losing anything. By lowering your interest rate, you can still have access to the same property, just at a lower cost. Saving this money can help you just as much as increasing profit by a comparable amount, but it requires far less effort.

Refinancing also allows property owners to access any equity that has grown over time. This equity can be accessed to provide funding for renovations, upgrades, or other tasks that improve the property’s overall value. As you can see, there are many benefits to refinancing, especially when interest rates are low.

Below are some tips that can help you with commercial mortgage refinancing:

1. Lengthen terms: Extending the term of your commercial mortgage from 3 to 25 years can help reduce your monthly payments and ease the strain on your small business cash flow. This strategy means that you will have to pay longer, but if cash flow is a problem for you, then it can be a great strategy to lower payments and free up cash for other expenses.
2. Pop the balloon: If you have a balloon mortgage, refinancing can help you avoid making a large payment to cover the remaining amount. This type of loan can sink many businesses, so refinancing into a fixed-rate mortgage is a great way to ensure that you know how much every payment will be and that you have the cash on hand to cover it.
3. Cash-out refinance: If your commercial property is worth more than your mortgage balance, a cash-out refinance can help you access that equity and boost your cash-on-hand. You could also use the funds to reinvest back in your business. Accessing your equity is a great way to leverage all of your resources and ensure that you are maximizing their use.
4. Repair your credit: If your business doesn’t have the best credit record, a refinance is a great way to contribute to rebuilding your creditworthiness. Review your credit report and pay off any debt or arrange a payment plan for larger balances. This tactic can prove to lenders that you are working on your credit issues. Also, securing a fixed-rate loan at favorable terms makes it more likely that you will be able to make payments on time, meaning it can help your credit record in the long run.
5. Seek a reputable lender: Not all lenders are created equally, and with online lenders and crowdsourcing gaining popularity, you will want to do some diligent research before committing to one. Shop around for lenders offering favorable refinancing packages. Choose lenders that prioritize customer success and transparency.
6. Increase collateral and down payment: Put down extra collateral on the refinance to improve the interest rate and loan term. You can also increase your down payment to improve the loan-to-value ratio and increase your chances of approval.
7. Anticipate changing loan terms: Be prepared for the possibility that the lender may not offer your preferred loan structure. It may not be as favorable as your original loan package. It’s vital to scrutinize any offer and ensure you understand what it means related to your monthly payment, the duration of the loan, and any changes in the terms that could be expected.  
8. Prepare for fees and finance charges: A new loan means new fees and finance charges. Plan for appraisal costs, closing costs, origination fees, inspections, title searches, surveys, and more.

When done correctly, refinancing your commercial mortgage can save you money and help you grow your business. If you need help securing financing or a business loan in an efficient and ethical manner, please contact our team today.

Penn Commercial Capital can finance clients seeking loans from as little as $100,000 up to $100 million. We’re proud to champion the small businessperson.