One of the results of COVID-19 is a low-rate environment for those looking to borrow and purchase multifamily apartments, or refinance an existing loan.
The 10-year U.S. Treasury has been below 1% since April and is currently at 0.736% as of October 6th, 2020.
Many apartment complex owners with existing multifamily apartment mortgages are making the most of the low rates and refinancing to reduce the amount paid on their current mortgage.
What Kind of Rates Are Available?
HUD/FHA, Freddie Mac and Fannie Mae are all currently offering very low fixed mortgage rates. Rates are expected to stay relatively low throughout the rest of 2020.
HUD/HFA
Multifamily apartment owners, including those with years of ownership, have the opportunity to refinance and move to a HUD/FHA 223(f) loan with rates as low as 2.3%-2.5%. These loans are fixed and fully amortized for up to 35 years, but cannot exceed 75% of the property's remaining economic life.
Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac are currently offering interest-only loans. They are also providing low, fixed rates that are amortized for 30 years, as well as a shorter fixed-rate term option that includes a balloon payment when the fixed rate term ends.
Fannie Mae and Freddie Mac rates are as low as 3.2% to 3.5% depending on the terms, loan-to-value and whether the units are market rate or have affordability components.
Refinancing Requirements
Due to the COVID-19 pandemic, lenders have become more selective in terms of who they are willing to lend to, and about the projects they are refinancing.
Loan officers want to make sure the borrower has enough liquidity to cover the debt service if occupancy decreases. Many lenders will also require reserve escrows of six to eighteen months covering the cost of the principal, interest, property taxes and insurance. The escrows are usually released once the property attains an actual amortizing debt service coverage ratio that is equal to the minimum underwritten debt service coverage ratio (DSCR).
Find Out if You Could Benefit From Refinancing
Many borrowers are apprehensive to refinance due to expensive defeasance or yield maintenance arrangements. However, LSG Lending Advisors has seen many projects benefit from refinancing transactions that included pre-payment penalties. This has often been the case, even when the borrower predicted that the penalties would negate any benefits that they would receive from a new loan with a reduced interest rate.
LSG Lending Advisors can review your project to find significant savings opportunities utilizing the current market rates. Our calculations will enable you to determine whether the benefits of refinancing outweigh the cost of pre-payment penalties, bearing in mind the length of time it would take to recapture penalty costs. Contact LSG Lending Advisors today to learn more.