6 Questions for your Lender. It’s about more than just rate!
While interest rates are important, but it is by no means your only consideration. Here are 6 questions to ask your Commercial Mortgage Lender:
1. Does your Bank finance your property type?
Lenders may not have any appetite for your type of property. Why? There may a number of issues at play. Perhaps their hesitation is due to perceived risk in that industry. It could also be that they are re-balancing their loan portfolio, due to a concentration of similar property loans. It may also be as simple as having an unfortunate recent bad experience with a loan(s) in that industry category. Specialty use type properties are often tough to finance. An example might be Self-Storage units. Loans on this type of property have historically experienced low default, but some lenders are completely unfamiliar with the industry. Know this, and don’t waste your time trying to fit a square peg into a round hole.
2. Does your Bank finance properties in your community?
Your lender may not lend in your community. This may be related to perception of risk. It may also relate to geographic concentration of loans within their portfolio. Credit Unions may have policy restrictions on lending only in areas where their members reside. Some larger lenders prefer to lend in communities which have a minimum population threshold.
3. What is your Bank’s approval process?
This is an important consideration, particularly if your financing is time sensitive. Its great if decisions are made by local personnel at the local Branch or office where you have applied. Additional time is required however, if the loan application needs to be forwarded to a centralized adjudication office, perhaps elsewhere in the Country. Similarly, vetting by a Credit Committee, which may meet infrequently, will delay approval. Loan approvals often take longer than most prospective borrowers believe they will.
4. What additional terms and conditions apply?
Fairly critical to your decision as to which lender to approach, is an understanding of their standard terms and conditions. Will you need to arrange for various 3rd party reports in support of your application, such as an appraisal and environmental report? Do you need to use a lender designated lawyer, or can your lawyer prepare the loan documentation? Will you need to transfer your day to day banking to your new lender? What are the application or processing fees?
5. What features and benefits are available to you?
Different lenders have different product features. If you are financing an apartment building, it may be important to you to have the ability to make mortgage payments on the 5th of the month, after rent cheques clear. Perhaps you would prefer a non-recourse financing offer? Will you have the ability to fix the rate just before closing, or well in advance of closing? Does your lender have that flexibility? Can the lender provide a Line of Credit as part of your mortgage financing? Is there a prepayment privilege, and if so, how is it calculated? Do they offer various lengths of term, length of amortization periods, and a fixed or floating rate option? Any one of these features may be considerably important to you.
6. What are your Bank’s rates?
Finally, you will want to ensure that your lender’s rates are competitive. How are they determined? Is is based on a spread over their cost of funds, over their residential mortgage rate, or perhaps over the yield on a Government Bond? When is the rate set? Can you buy down the rate?
In conclusion, it is more than just rate! Ask the right questions. Inform yourself. Get the best financing offer available!