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4 Reasons to Refinance Your Office Loan Today
Now may be the perfect time to refinance your office asset, regardless of the sector’s headwinds.
There’s a lot of hesitancy in the office real estate sector these days. It’s hardly surprising: Leasing activity has been down in the dumps since the pandemic, and many office assets even in gateway markets no longer seem like the safe bets they did just a handful of years ago.
That’s not to say office is bad news right now, but fewer investors appear to be specifically targeting the sector, instead focusing on red-hot asset classes — like industrial properties or multifamily communities — where returns seem more assured. That’s not the whole story by half, of course. Many office assets remain incredibly attractive, depending on location and where they fall on the quality spectrum, according to a recent JLL report.
If you own an office building, though, now is a great time to look into reducing your costs, given the uncertainties before the sector. And one of the best ways to lower your cash outflows is by refinancing your debt, whether it’s with a life company or a CMBS lender. But that’s not all: This article will examine some of the reasons why an office refinance could make a key difference in your investment portfolio’s returns.
Curious how refinancing could work for your specific situation? Fill out the short form at the bottom to connect with our loan advisors and get a free quote.
1. Grab Better Loan Terms
One of the most common reasons to refinance a loan is to take advantage of better terms. Just because interest rates are higher now than when you closed your previous loan doesn’t mean much if your loan has a variable rate. Similarly, perhaps your current loan’s term is ending in the next year or two. Who knows how much higher rates could climb in the meantime? Locking in a fixed-rate financing package now could offer major benefits in reducing your future costs.
2. Get More Manageable Payments
It isn’t just about interest rates, though. If you bought your office building when it was less healthy — say, it had subpar vacancy or needed significant capital improvements — your current financing will reflect the state of the property then, not now. By leveraging an office asset with stable, strong performance, you may be positioned to take advantage of longer loan terms and amortization schedules, which could translate into lower monthly debt service payments.
3. Free Up Capital
Maybe you’re interested in diversifying your portfolio by getting into the industrial property sector. Or maybe you want to access some extra capital to transform that boring, Class B office building into a modern, high-end work paradise. If you can secure a higher leverage cash-out refinance, that’s money in the bank for your next investment play.
4. Avoid End-of-Term Balloon Payments
Finally, many office loans come with huge payments at the end of their term. Known as balloon payments, they are the natural result of loans with longer amortization periods than terms. This is relatively common in commercial real estate finance, and unless you plan to sell the property prior to the payment coming due, it’s a great incentive to refinance.
Not sure how much your balloon payment is for your current loan? Plug your numbers into our free commercial mortgage calculator below to get an estimation.
Related Questions
What are the benefits of refinancing an office loan?
Refinancing an office loan can offer many benefits, such as:
- Grabbing better loan terms, such as a fixed-rate financing package which could reduce future costs.
- Getting more manageable payments, such as longer loan terms and amortization schedules, which could translate into lower monthly debt service payments.
What are the risks associated with refinancing an office loan?
Refinancing an office loan can be a great way to reduce monthly payments and avoid balloon payments, but there are some risks associated with it. These include:
- Higher interest rates: Refinancing can result in higher interest rates, which can increase your monthly payments.
- Closing costs: Refinancing can also involve closing costs, which can add to the overall cost of the loan.
- Loan terms: Refinancing can also involve changing the loan terms, which can have an impact on the overall cost of the loan.
It's important to weigh the risks and benefits of refinancing an office loan before making a decision. You can use our free commercial mortgage calculator to help you make an informed decision.
What are the best strategies for refinancing an office loan?
The best strategies for refinancing an office loan depend on your individual needs and goals. Some strategies to consider include:
- Getting a lower interest rate to reduce your overall loan costs.
- Getting more manageable payments by leveraging an office asset with stable, strong performance.
- Freeing up capital to diversify your portfolio or make improvements to the office building.
For more information, please see this article.
What are the most important factors to consider when refinancing an office loan?
The most important factors to consider when refinancing an office loan are the loan terms, interest rates, amortization schedules, and monthly debt service payments.
When it comes to loan terms, you may want to consider locking in a fixed-rate financing package to reduce future costs. Interest rates are also important to consider, especially if your loan has a variable rate. Additionally, you may be able to take advantage of longer loan terms and amortization schedules, which could translate into lower monthly debt service payments.
For more information, please see the following sources:
What are the current interest rates for refinancing an office loan?
The current interest rates for refinancing an office loan depend on a variety of factors, such as the size of the loan, the type of loan, the borrower's credit score, and the current market conditions. According to Multifamily.today, the Federal Reserve recently announced that the federal funds rate will remain at 0.25%, which is the lowest rate in history. This could be a great opportunity for borrowers to refinance their office loan and take advantage of the current low interest rates.