Refinance of your Commercial Mortgage
What the Chandler & Co. Brokers say
Every year commercial mortgages come up for renewal or refinance with this article looking at the most common themes when care providers speak to a care home specialist broker.
Commercial care home mortgages are not standardised and each financial application submission to a lender is bespoke.
With costs of funds at a higher level than the last decade, lenders build in trajectory rates of interest when releasing initial lending terms, and a care home business will need to assess any impact of an increase in their borrowing when looking at the end of, for example, a fixed rate term, and looking ahead to a new finance arrangement.
Part of the lending process when looking at a refinance can result in a further valuation of the property and business, whereupon a change in the value of the care home property can impact the lending offer.
A higher loan to value could result in a higher lending facility and vice versa, potentially with the ability to release additional equity.
Current and past financial records are important in demonstrating timely loan repayments when the care home finance is being reviewed, thus having up to date management information and timely filed past financial statements is crucial.
Impact of the loan review
When care home loan terms are being reviewed this can lead to:
- Rolling on the terms after a lender review
- Some lenders will end the loan and the refinance will be resubmitted to Credit potentially resulting in
- New terms
- New valuation
- New arrangement fee
- A reprofiling of the existing loan
- Increase the borrowing
- Reprofile the repayment period
- For operational working capital
- For the purpose of a build extension
- A refurbishment
- A new build
- A care home acquisition
When is the right time to assess a commercial mortgage renewal?
This usually depends upon the cost consideration and will be subject to the lender, with each having a different Early Repayment Charge (ERC) term, with fixed rates also having an exit fee to consider.
What happens when a fixed rate commercial mortgage ends?
The loan will usually revert to a variable rate if the term is longer than the fixed term and the lender may offer to review the interest rate for a new fixed term (details will be included in the original loan agreement).
The specialist care home broker’s role is to approach the wider lending market in order to obtain the finance terms from a variety of lenders and in turn obtain new terms:
- Interest rates
- Commitment term - usually 5-25 years
- Repayment profile - usually 15-25 years
- Repayment type - Capital & Interest and/or Interest only