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When Should You Refinance Your Commercial Mortgage?

While that’s a pretty easy question to answer for residential mortgages, where refinancing is driven almost entirely by interest rates, the reasons for refinancing a commercial mortgage can be more complicated. Like a residential mortgage, low or falling interest rates can be a significant factor in commercial mortgage refinancing, but plenty of other considerations enter into a decision as well:

Timing. If the loan has an adjustable rate or a fixed rate that will end soon, refinancing can greatly reduce the volatility in your loan portfolio or avoid the potentially large liability of an upcoming balloon payment. 

Freeing up funds.
One of the best reasons to refinance is to reduce monthly payments or extract equity to reinvest in purchasing the property or improving existing properties.

Consolidating debt. Combining multiple commercial properties into one new loan can reduce your portfolio’s overall risk by balancing stronger and weaker properties. A larger loan may offer more favorable terms and an overall reduction in fees. 

Cost of refinancing.
Prepayment penalties can be substantial and closing costs can add up quickly.

Tax implications. Be sure to consider all the tax angles. For example, equity you remove in a refinancing would be taxed if you convert it to personal income, but not if you invest it back into the business.

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