Question for Admin,
Is there such thing as interest only commercial loans for investment property? If so, are there specific pro's and cons to consider other than the obvious?
I appreciate your feedback.
Sincerely,
-Newcomer
Full Version: Interest only payments on commercial loans?
Well, it depends…… remember that commercial loans is more than commercial real estate financing. Commercial loans include those loans made out to businesses to support their operations “working capital financing”. In the case of business loans, interest only lines of credit are the norm.
However, in financing commercial real estate, which is probably what you are interested in, most bank lenders will not commit themselves to a long-term interest only deals. There are always written guidelines as to what amortization is required for these deals. Now this doesn’t mean that some kind of hybrid could not be developed in order to help a client out. I can think of a couple of situations where interest only for a period of time will be called for:
Construction loans usually are interest only during the construction period. They might even have built in “interest reserves” where the interest is actually being paid during the construction period from the loan.
Vacant income producing property might be given a limited “interest only” period to allow for marketing and new tenants. In this case, you would have to show the ability to get tenants and the financial strength to be able to afford amortization if you are unsuccessful in getting tenants.
Frankly, I just haven’t seen a permanent interest only product in commercial real estate lending. I very much doubt that there are any lenders out there that do it at anything other than by safeguarding themselves with a very low loan to value.
However, in financing commercial real estate, which is probably what you are interested in, most bank lenders will not commit themselves to a long-term interest only deals. There are always written guidelines as to what amortization is required for these deals. Now this doesn’t mean that some kind of hybrid could not be developed in order to help a client out. I can think of a couple of situations where interest only for a period of time will be called for:
Construction loans usually are interest only during the construction period. They might even have built in “interest reserves” where the interest is actually being paid during the construction period from the loan.
Vacant income producing property might be given a limited “interest only” period to allow for marketing and new tenants. In this case, you would have to show the ability to get tenants and the financial strength to be able to afford amortization if you are unsuccessful in getting tenants.
Frankly, I just haven’t seen a permanent interest only product in commercial real estate lending. I very much doubt that there are any lenders out there that do it at anything other than by safeguarding themselves with a very low loan to value.
Newcomer : In multi family 5 units and up I have several different intrest only programes but they have diffrent restrictions like with all multi family loans it depends on how well the bulding cash flows . With the best case scenario you could get 30 year amotriozation 80% L.T V with 3 or 5 year fixed intrest only or you may only be approved at 50 to 60 % L.T.V it all depends on the property. if your intrested drop me a e-mail (jesse@nationalapartmentfinance.com)
Are you thinking about an interest-only on commercial real estate to benefit from market appreciation, or to help start/recover in an enterprise?
As LU stated, the former is rather unlikely to get (the bank is sitting with the risk while you're getting the appreciation - banks like to get paid off in an orderly fashion!), while the latter is very possible.
As LU stated, the former is rather unlikely to get (the bank is sitting with the risk while you're getting the appreciation - banks like to get paid off in an orderly fashion!), while the latter is very possible.
QUOTE(loanuniverse @ Dec 30 2004, 10:16 AM)
Well, it depends…… remember that commercial loans is more than commercial real estate financing. Commercial loans include those loans made out to businesses to support their operations “working capital financing”. In the case of business loans, interest only lines of credit are the norm.
However, in financing commercial real estate, which is probably what you are interested in, most bank lenders will not commit themselves to a long-term interest only deals. There are always written guidelines as to what amortization is required for these deals. Now this doesn’t mean that some kind of hybrid could not be developed in order to help a client out. I can think of a couple of situations where interest only for a period of time will be called for:
Construction loans usually are interest only during the construction period. They might even have built in “interest reserves” where the interest is actually being paid during the construction period from the loan.
Vacant income producing property might be given a limited “interest only” period to allow for marketing and new tenants. In this case, you would have to show the ability to get tenants and the financial strength to be able to afford amortization if you are unsuccessful in getting tenants.
Frankly, I just haven’t seen a permanent interest only product in commercial real estate lending. I very much doubt that there are any lenders out there that do it at anything other than by safeguarding themselves with a very low loan to value.
However, in financing commercial real estate, which is probably what you are interested in, most bank lenders will not commit themselves to a long-term interest only deals. There are always written guidelines as to what amortization is required for these deals. Now this doesn’t mean that some kind of hybrid could not be developed in order to help a client out. I can think of a couple of situations where interest only for a period of time will be called for:
Construction loans usually are interest only during the construction period. They might even have built in “interest reserves” where the interest is actually being paid during the construction period from the loan.
Vacant income producing property might be given a limited “interest only” period to allow for marketing and new tenants. In this case, you would have to show the ability to get tenants and the financial strength to be able to afford amortization if you are unsuccessful in getting tenants.
Frankly, I just haven’t seen a permanent interest only product in commercial real estate lending. I very much doubt that there are any lenders out there that do it at anything other than by safeguarding themselves with a very low loan to value.
For the most part Private money lenders are the only commercial lenders who provide interest only programs. My company only provides interest only commercial loans, however we are a bridge lender, our loans have terms of 1 to 5 years and are typically paid off in less than 18 months.
And yes we can build in interest reserves so that your client is not responsible for a payment until a specified time or they are ready to pay in full.
Typically however, conventional commercial lenders do not offer interest only programs, if you are in need of such a program at more conventional rates and fees, I may be able to point you in the right direction of a person I exchange referrals with.
And yes we can build in interest reserves so that your client is not responsible for a payment until a specified time or they are ready to pay in full.
Typically however, conventional commercial lenders do not offer interest only programs, if you are in need of such a program at more conventional rates and fees, I may be able to point you in the right direction of a person I exchange referrals with.
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