Commercial Loans Blog

Can I Lock My Rate On a Commercial Loan?

Posted by George Blackburne on Mon, Nov 28, 2016

Lock in rate.jpgInterest rates on commercial real estate loans are definitely going up.  A reasonable commercial mortgage borrower might want to apply now, rather than wait, especially if he has a balloon payment coming due.

The problem is, however, is that most commercial real estate loans take several months to process.  The problem is not with the lender.  It's the commercial property appraisal.  Income property appraisers seem to take forever.

You can obtain a commercial loan faster than that, but most bridge lenders only offer short-term commercial loans, and the interest rate on bridge loans is usually much higher than on permanent loans.  It makes little sense to accept an interest rate that is 4% higher, just to close your commercial loan 45 days sooner.

 

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By the way, a permanent loan is just a garden-variety first mortgage on a commercial property, with a term of at least five years and with some amortization.  Twenty-five years is the the typical amortization for permanent loans.

 

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"Put your head back on your shoulders right now, young man,
and don't ever let me catch you taking it off again!" -- Mama

Soooo?  What's the answer.  Can I lock my rate on a commercial loan?

No.  I have met 5,000+ commercial lenders in my 36-year career in commercial real estate finance (CREF), and I have never met a commercial lender which will allow you to lock your interest rate while your commercial loan is in processing.  Sorry.  Now that being said, there are around 10,000 commercial real estate lenders in America.  I suppose there may be one or two which will allow you to pay a fee to lock your rate; but they are as rare and as hidden as the abominable snowman.  That's the bad news.

The good news is that very early in a commercial loan application process, most commercial lenders will issue a term sheet, which is also sometimes known as a loan proposal, proposal letter, or conditional commitment letter.  A term sheet is not a legally binding commitment to make a commercial loan.  It is merely a letter from a commercial lender expressing a bona fide interest in making the loan and a good faith estimate of the eventual terms.

 

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Commercial lenders issue term sheets because appraisals, title commitments, and sometimes toxic reports, are very expensive.  Few borrowers would ever agree to pay for these third party reports, absent something in writing from the lender that is at least morally binding the lender to make the loan.

Continuing with our description of the good news, if a commercial lender issues a term sheet, and the third party reports come back satisfactory, the issuing commercial lender will almost always honor the interest rate on the term sheet, even if market interest rates have increased.  Remember, the commercial lender is not legally obligated to do so.  It's just the custom and practice in the industry.

There are a few exceptions.  Conduits, also known as CMBS lenders, sell their huge commercial loans to securitization pools.  They simply must close their commercial loans at an interest rate attractive to the securitization industry.  Therefore if the bond makets get roiled by some external event, for example, a military coup in Turkey, and investors flee from commercial mortgage-backed securities in favor of less-risky U.S. Treasuries, your CMBS lender may have to re-price your loan; i.e., raise the interest rate.

Do you need a commercial loan right now?  Are you strong financially - bankable or maybe even stronger?  If so, you should submit your commercial loan to our 750 hungry commercial lenders using C-Loans.com.  Our four-minute mini-app is accepted by all 750 of our lenders.  And C-Loans is free!

 

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We recently released a competing commercial mortgage portal - also free - that enjoys four times as many commercial lenders as C-Loans.

 

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Is your client's company losing money? Is your borrower a foreign national?  Do you need a non-recourse loan?  Do you need a commercial loan with no prepayment penalty?  Is your client's commercial property partially vacant?  Do all of your commercial leases run out in the next 18 months?  Do you need a lender who will allow a negative cash flow? Do you need a lender who will also look at the borrower's global income - income from salaries, other investments, etc.?  Do you need a lender who will allow the seller to carry back a second mortgage?  Does your client have a balloon payment coming due on his commercial property?  Has your bank offered him a discounted pay-off?  Does your borrower have less-than-stellar credit?  Blackburne & Sons is a private money lender, and we are much looser in our underwriting.

 

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Topics: locking your rate