Commercial real estate buyers and investors have several aspects they need to consider, and money holds special significance. You need to keep track of your commercial real estate loan to prevent potential delays in payments because that will affect your credit rating.

It is critical to handle your credit rating with care because that affects all your future loan applications and business decisions. Commercial real estate refinancing is a primary financing strategy you need in your arsenal when your regular loan payments don’t go according to plan.

This blog will familiarize you with the concept and explain when refinancing becomes relevant for commercial real estate buyers or investors.

What is Commercial Real Estate Refinancing?

Commercial real estate refinancing means paying off your first loan with a second loan. Refinancing is a common loan payment strategy most people use to avoid defaulting on loan payments. The second loan allows them to pay back the money they owe without affecting their credit rating. They also get more time to arrange money for full repayment.

However, the refinanced loan has a much shorter repayment timeline. Therefore, the borrower needs to arrange the sum instead of being relaxed.

Why You May Need Refinancing for your Commercial Real Estate Loan

There are several reasons why you may need commercial real estate refinancing even when you make regular loan payments.

1. Commercial Loans Mature Fast

The most common reason investors opt for refinancing is avoiding balloon payments. Commercial loans have a far shorter maturity than residential mortgages and usually offer 2, 5, or 10 years for repayment.

That means that while you may enjoy smaller payments until maturity, you will need a cover a much bigger balloon payment at the end to clear the loan. Not everyone has liquid money lying around to cover the bigger sum at the end; hence, refinancing is the best way to tackle it.

2. Avail of Better Interest Rates than the Original

Interest rates are subject to change, and they can influence the overall cost you incur on commercial real estate. You may have settled for a higher interest rate because that was the best offer available at the time. However, interest rates dropped recently, and you have the opportunity to reduce your expenses slightly.

Refinancing your commercial loan with another that offers lower interest rates can reduce the overall cost of acquiring the property. However, some lenders have strict penalties for early payments, so ensure that the net value of refinancing still benefits you.

3. Getting Spare Cash for Immediate Needs

You can get a little over the sum you need for loan repayment with cash-out refinancing. The spare sum comes in handy to cover any immediate necessities, like investing in property improvements. Hence, you can kill two birds with one stone.

Wrapping Up

To sum up, commercial real estate refinancing is a strategy needed to refinance commercial loans to avoid balloon payments, benefit from better interest rates, or get extra cash for immediate needs.

If you want to invest in commercial real estate in Rio Grande Valley, please contact the CHRE team. We have worked in the region for several years and can help you choose the most suitable investments for your portfolio.