It’s Time to Refinance. What Should You Do Now?

We all know interest rate fluctuations impact refinancing decisions.?

Recently, I conducted an informal poll on LinkedIn. I wanted to know what my audience thought borrowers would do if rates went up instead of down before they had an opportunity to refinance. Here’s what they shared:

17% would accept the higher rate.

33% would find a lender with lower rates.

17% would look for partners.

And 33% would sell their property.

These results reveal a range of strategies borrowers might consider in a rising rate environment. Let’s dive into the pros and cons of each option, and explore how life company lending solutions can offer a competitive edge.

1. Accept the Higher Rate

Pros:

• Protection: Interest rates may continue to rise.
• Stability: Avoid the potential need to pay to reduce the loan's principal balance due to a decrease in property values.

Cons:

• Opportunity Cost: Potentially missing an interest rate drop.
• Reduced Profitability: Higher interest expenses may decrease overall return on investment.

How Life Company Lending Can Help: Life companies have a substantially lower cost of funds, so they offer competitive fixed rates for longer terms, providing predictability and more favorable rates than traditional banks. Currently, their rates are 100 to 200 basis points lower than most banks. They also do not require deposit accounts, or recourse.

2. Find a Lender with Lower Rates

Pros:

• Cost Savings: Lower interest rates can reduce monthly payments and overall interest expenses.
• Better Terms: Avoid a maturity default or begging for a short term extension when their current loan matures.

Cons:

• Time-Consuming: Shopping for new lenders and comparing offers can be labor-intensive.
• Uncertainty: Finding lenders with lower rates, or lenders willing to provide the current level of loan proceeds, will be complicated due to more stringent underwriting and severe stress testing.

How Life Company Lending Can Help: Life companies typically offer attractive loan packages with competitive rates and flexible terms, making them a viable option for borrowers seeking better deals.

3. Look for Partners

Pros:

• Shared Financial Burden: Partners can help cover increased costs, easing financial strain.
• Diversified Investment: Reduces individual risk and can bring additional resources and expertise.

Cons:

• Shared Control: Involves giving up some level of control over the property.
• Complex Agreements: Potential conflicts can lead to costly litigation and struggles to manage your investment.

How Life Company Lending Can Help: Life companies offer structured solutions that can accommodate multiple investors.

4. Sell Your Property

Pros:

• Capital Release: Frees up capital for other investments or to reduce overall debt.
• Avoid Higher Costs: Eliminates the burden of higher interest payments.

Cons:

• Market Risks: Selling in a less favorable market can result in lower returns.
• Loss of Asset: No longer benefiting from potential future appreciation and income.

How Life Company Lending Can Help: For those looking to hold onto their assets, life companies provide long-term, stable financing options that can make retaining ownership more feasible even in a rising rate environment.

Expert Advice: Making Informed Decisions

Timing the market is impossible. I recommend you make the best decision you can with the options being offered. Waiting to see what happens is not a plan, and unfortunately, hope is not a strategy. The best of both worlds (fixed rate with no prepayment penalty) may not be available to you.

For now, I’ve been talking with borrowers who want the shortest loan term being offered. This may work should rates go down, but they may be back in the market at even higher rates. A better strategy is to lock in a decent term (5 or 7 years) with some prepayment penalty flexibility. If that doesn't appeal to you, you may be better off with a floating rate. Yes, a floating rate. As you know, your rate will float down if rates go down.

Rising interest rates present challenges , but with strategic planning and the right lending partners, borrowers can adjust effectively. Life company lending solutions offer competitive rates, flexible terms, and long-term stability, making them an excellent option for those seeking to refinance in a higher rate environment.

Need expert advice on commercial real estate lending? Contact us today to explore the best strategies and lending solutions for your unique situation.

Schedule a 15-minute complimentary consultation: https://calendly.com/michaelbalan/