Lenders are often willing to reduce your monthly payment using a number of different methods including reducing your interest rate, lengthening the term of the loan, allowing for interest only payments for a predetermined period, and delaying payment of past due amount to the end of the term of the commercial loan.
Commercial loan modification generally takes 45-90+ days to complete (from date of submission). If a commercial property is not generating enough income to pay the mortgage or the operating expenses, a commercial lender may consider a temporary or permanent interest rate reduction. Reducing the interest rate will in turn lower the payment to allow the commercial property owner to increase the cash flow of the building. An interest rate reduction is ideal for property owners who have high vacancy rates. Lowering the interest rate should allow the borrower to service the debt while the vacant units are filled.
Another common form of commercial loan modification is to extend the loan term. Extending the term or the maturity date of a loan can help commercial property owners avoid balloon payments and reduce their monthly mortgage nut. Many commercial loans have short terms, sometimes as few as 1 or 2 years. When the loan matures after only 1 or 2 years, the borrower is responsible for making a large balloon payment to pay off the principal balance entirely. Most lenders will consider a loan extension, but sometimes at a cost. They may charge a point, or 1% of the loan amount, or extend the term at a higher rate of interest. Commercial property owners with loans nearing the maturity date may want to contact a commercial loan modification attorney to prevent this type of bullying by the lender.
In addition to lowering the interest rate or extending the term, a commercial mortgage lender may consider a deferment of payments as a form of loan modification. Sometimes called a payment moratorium, lenders may allow a borrower not to make a mortgage payment for 3 to 6 months. During this time, the borrower is able to build up cash reserves and rent out vacant units.
The benefits of commercial loan modification to the property owner is the prevention of foreclosure because loss mitigation works to either relieve the property owner of the mortgage obligation or create a mortgage resolution that is financially sustainable for the property owner.
This post was written by First Source Law
