Commercial Equity Line Vs Fixed Rate Commercial Second Lien region Loan
Many owners in the commercial proper estate industry are unaware that a second lien plot loan exists, and especially in this rough market. But yes, for the correct scenario borrowers can level-headed score these second lien area loans. These programs are geared towards smaller projects though with valid estate values less than $3,000,000. Loan amounts on the commercial line or commercial second mortgages are capped at $500,000.
Both programs can be outmoded by either investors or business owners, though the loan requests are easier to fund for business owners (because there are no property specific Debt Coverage Ratio’s to contend with) .
As far as which loan program is a better option, we in general recommend the fixed rate program. First of all the rate is fixed between 5, 10 or even 15 years. This security of brilliant the interest rate will not depart is indispensable in this hazardous market. With inflation looming, it seems clear that the fed will soon commence bumping up rates again, which will do many borrowers in floating loan programs in painful positions.
Also, the rate on the commercial second mortgage is often fair on par or only slightly higher than with the line – with the security of being fixed. For example, as of this writing 7/08, the rate on the line of a $500,000 loan amount is at around Prime plus 1.5% or 6.5%. While the 5 year fixed, 30 year amortization loan rate is at 6.9%.
In addition, underwriting is often a slight easier with the commercial second mortgage than with the commercial line of credit.
The well-known aid of the commercial equity line of credit is having capital, available and ready. Like a home equity line, the borrower does not pay interest on the line unless money is pulled out and old. Often borrowers that want the line employ it to recapitalize a business, rehab or renovate another property or spend the money out of the line as the down stroke on the seize of another property.