Here’s a letter we received from our trusted commercial loan expert, Dennis Dishaw of ACI Capital, talking about the favorable conditions for people looking to refinance their apartment buildings:
“Over the last few months we have seen the “Fannie Mae” 10 year fixed rate remain in the 4% range. That means today (11/30) you can get up to 80% LTV fixed for 10 years at 4.40%. Want lower? Take their 7 year rate at 4.13% today. Currently “Freddie” is offering an ARM as low as 3.10% with a max note rate of 6.5%. Can it get lower than this? Your loan has a prepay penalty that doesn’t expire until next year? Add the fact, that FNMA offers extended rate locks at better pricing now and using this option gets you today’s low rates for a 2012 close. Loans under $3 million are priced higher but are still in the low 5% range.
We heard the Fed say over the last year, that they would do everything they could to avoid a double dip recession. They are keeping rates very low for that reason. Lenders are reading that rents have stabilized for apartment units nationwide as have values in many markets. A few banks are approaching FNMA pricing also. This adds up to more confidence for lenders and consequently, lower pricing.
The unspoken benefit of a lower rate is lower payments. Putting a number to the new payment tells the investor if the time and cost of a new loan is worth the effort. Even with a 5.5% rate now, a new rate of 4.4% on $4.0 million would reduce the annual debt service by over $32,170. Smaller loans have slightly higher rates but the effect is similar. On an existing loan of $1.1 million at 6%; the new payment at 5% would save you $8,200 per year. One final issue to consider is that interest rates will surely rise in the future. An existing loan at these rates will be very attractive when it comes time to sell.
One thing is sure. New loan requests to refinance will not come to the table with a higher rate! We recommend that you look at your existing portfolio to see if you can maximize your income stream by lowering existing debt service. ACI is happy to provide a detailed quote in advance to help with this decision.”
Dennis E. Dishaw