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How To Refinance A Commercial Property In 2024
Before you consider refinancing commercial real estate, though, it's critical to understand the various costs and lending requirements
By: Winston Rowe and Associates
What does it mean to refinance commercial property.
At its core, commercial real estate financing works similarly to residential mortgages. Refinancing a commercial loan is therefore very similar to refinancing a mortgage on a residential property.
The process involves using the money from a new loan to pay off an existing one.
Typically, borrowers refinance their loans when they can qualify for more favorable terms, such as a lower interest rate or a different loan type.
Refinancing can also help property owners access the cash that their home equity represents, increasing cash flow.
Commercial property refinance loan types.
The three main options to choose from when looking to refinance a commercial loan.
Government-backed refinance loans
This type of refinance loan is backed by a government agency like the SBA or the U.S. Department of Agriculture (USDA).
Conventional commercial refinance loans.
A conventional loan is any mortgage that's not backed by the federal government. Conventional commercial mortgages typically come from a traditional bank or mortgage lender. Commercial loans often don't have specific loan limits; instead, lenders allow you to borrow a certain percentage of the value of the property that acts as collateral. They typically allow a loan-to-value (LTV) ratio of 60% to 80%.
Commercial cash-out refinance loans.
A cash-out refinance commercial loan allows you to replace your existing mortgage with a new one by borrowing more money than you currently owe on the property.
Once you're approved for a cash-out refinance commercial loan, the difference between the new loan amount and how much you owe on the property is paid to you, in cash, at closing. You can expect to access around 75% of the refinanced property's value in cash.
Winston Rowe and Associates specializes in commercial real estate investing financing, they prepared this article. You can contact them at 248-246-2243 or visit them online at https://www.winstonrowe.com
Winston Rowe and Associates