The advantages of CMBS loans
If you are considering buying a Investment property, then CMBS loans are not a bad place to start. Let’s look at some of the benefits of choosing a CMBS loan.
Fixed interest rates
These loans tend to come with better interest rates than you would find with a traditional business loan. And CMBS loans usually come with fixed interest rates, which means rates won’t fluctuate for the life of the loan.
These types of loans tend to be a better bet for borrowers and investors. Borrowers enjoy consistent monthly payments, and these types of loans have a lower risk of default than variable rate loans.
High leverage
CMBS loans tend to come with high leverage financing, but do not have the same high credit or borrower net worth requirements. Most properties come with a maximum loan-to-value (LTV) ratio of 75%.
Non-Recourse Terms
CMBS loans are also considered non-recourse loans. This means that if the borrower does not repay the debt, the lender cannot take legal action to hold the borrower responsible for the full amount of the loan.
It’s an obvious win for borrowers, but there are some caveats. Most CMBS loans have fine print that outlines the specific terms under which the loan would become full recourse.
For example, most loan terms state that if a borrower commits fraud or misrepresents their financial situation during the application process, the loan becomes a full remedy. And you would also be held responsible if it was determined that you caused intentional damage to the property.
Accessibility
CMBS loans are more accessible to borrowers with less than ideal credit. If you tried to find a way to buy a house with bad creditthen CMBS loans can be a good strategy.
Loan support
Most CMBS loans are assumable, although a small fee may be required. This means that if you decide to sell the commercial real estate and another borrower is ready to take out the loan, you can essentially assign it to them.
This borrower will then be bound by the same terms of the original loan agreement. An assumable loan is a significant advantage for borrowers, especially since most CMBS loans do not allow prepayments.
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