Tag Archive for: long term rates

Commercial Lending…What Not to Do!

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I have been practicing residential financing for over 30 years and commercial financing for over 20 years and have provided commercial financing on Multifamily (Apartments), Office, Retail, Medical (Dental and Doctor Offices) and Light Industrial properties (data storage units and auto dealerships).

During that time, I have witnessed that residential interest rates were always lower than commercial rates until the Federal Reserve started raising rates in January of 2022.  In looking at the current interest rate market, residential rates are varying between 6.5% to 7.5% depending on the loan amount, ltv, fico’s, property type and points paid, etc.  Commercial lending on the other hand has ranged recently from 5.5% to 6.5% depending on loan term, property types and points paid.

Most Important…

Commercial loans all have prepayment penalties (where residential loans do not) and they usually follow the term of the loan so they tend to not only be costly (if one breaks them) but they also tend to be very long in duration!

For Example…

  • 5 Year Fixed Loan (on a commercial loans) have a 5 year prepayment penalty that works like this with a 5-4-3-2-1 Prepay.  Year 1 of loan, the loan has a prepayment of 5% of the loan amount if the loan is paid down or paid off.  Year 2 is 4%.  Year 3 is 3%.  Year 4 is 2% and year 5 is 1%.  After the 5th year of 61 months out, the prepayment penalty drops off.
  • 7 year fixed with 7-6-5-4-3-2-1 Prepay…Year 1 of loan, the loan has a prepayment of 7% of the loan amount if the loan is paid down or paid off.  Year 2 is 6%.  Year 3 is 5% and so on like the 5 year fixed.  There’s also 10 and 15 year fixed loans.

So…Here’s the Million Dollar Question…Why is it so Important in This Market to Not Have a Prepayment Penalty on a Commercial Loan?

Answer…If you have a prepayment penalty on your commercial loan and rates drop, then how is one able to refi without breaking the terms of the loan and paying the prepayment penalty?  There Isn’t.  All you can do is a get a loan with a shorter prepay if one exists.

“Voila”…We have that option and banks like Chase, First Republic, Heritage to name of few don’t!

Last week we had a client with $2m dollar commercial loan that was comparing us to another lender and our rate was .5% higher in rate than the other lender or $650 per month more, but our prepayment on 5 year fixed was a 2-1 and theirs was a 5-4-3-2-1.  On $2 million in loan amount, year 2 (let’s say 18 months out after closing, rates drop) and the client wants to refi.  The client then pays $80k for the prepayment penalty with the other lender.  Our lender charges $20k plus the spread of the monthly payment equal to $650 or $11,700 at the 18th month or $31,700 in total.  The other lender charges the client $80k.  Hmm…$31,700 from our lender or $80,000 from the other lender with the lower rate.  Our option would save the client $48,300.  Again, which option is better?  Which lender should the client use??  Us or them???

See the logic of going with a lesser prepayment even if the rate is higher by a tad?  Having the lesser term or prepay is the logical way to go.  Unfortunately, this client was fixed on one thing…the rate where I was focused on the long term solution…Flexibility and the probability of lower rates and payments in the future, per this report from Morning Star, a publication that definitely is the closest to a crystal ball!

In Closing…

In the world of commercial lending just like residential lending there is more to just making a decision solely on the rate as illustrated above.  If you want our help and sage experience in making the best decision when it comes to choosing a loan product or making a financial decision, please contact us.

Below is a List of What we Do:

BTW...if you’d like to review my current market report, please go here.

All the Best,

Rob McCarthy

Senior Mortgage Advisor

www.101Loan.com

650-465-8957 c  408-377-4123 o  408-608-1921 f

CA DRE #01165697  NMLS #121019

101 Loan – 6090 Hellyer Ave #100, San Jose, CA 95138

Note: Interest rates and loan programs quoted are subject to change without notice or until locked and approved by lender.

Low Housing Inventory and High Interest Rates – If Your a Buyer, What Does this all Mean?

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Housing inventory remains very low in the Bay Area.  Even though interest rates remain high due to inflationary fears from the Fed’s, the higher cost of financing isn’t slowing the market down. 

In Santa Clara County, there are approximately 930 properties for sale (consisting of homes, town house and condos (as of July 2023)) with a median days on the market of 10 days.

In Santa Cruz County, there are approximately 305 properties for sale with a median days on the market of 22 days per Charles Holcomb with Compass Real Estate with the Dawn Thomas Team.  Its still very much a seller’s market with sellers demanding and getting prices well over list prices.

Last year I sold my home in Saratoga to downsize, thinking prices would go lower due to higher rates allowing to scoop up a great deal…Was I wrong!  In searching for property, I have seen multiple offers and listings going well above the list price.  In fact, I have seen accepted offers well above what comps support.  It feels a little like 2018 again.  Jen Beehler with the Elevate Group states as inventory remains lows, expect more of this.  She then went on to explain that when making an offer where financing is involved, its very important to be fully preapproved with the ability to close quickly.

At 101 Loan, we take pride in that, our preapprovals are fully underwritten (with DU run) allowing our buyers the ability to make offers without a loan contingency and close in a timely manner, sometimes in 3 weeks or less.  This helps our buyers make the strongest offer possible often times resulting in accepted offer.

For more on what we do for our buyers, please see below:

  • We get the buyer completely pre-approved before they make an offer, so they won’t need a loan contingency (unless we recommend having one), something seller’s require.
  • We strategize with the buyer and Realtor, to close in the quickest amount of time with the least amount of contingencies while keeping the buyers risk as low as possible.
  • At the time of an offer, we call the listing agent on behalf of the buyer and their Realtor to differentiate the offer over someone else’s. (This makes a huge difference in the eyes of the listing agent and seller and conveys strength in the preapproval)
  • We can close purchases in 21 to 25 days (as needed) depending on the loan program the buyer chooses. Faster is better in the eyes of the seller!
  • We provide a timeline to the buyer, the listing agent and the buyers agent, once the loan is locked; detailing each step of the transaction to ensure a smooth closing.  We ensure the buyer knows exactly what the loan will cost once locked and then update them immediately if there are any changes to the loan structure, as a result due to a change of circumstance.  We then re-summarize the costs before the buyer signs the loan docs.
  • We coordinate the buyer’s signoff with escrow and their Realtor, to ensure the purchase closes on time, as scheduled.

We basically “micro-manage” the purchase from start to finish to ensure everything goes as smoothly as possible, something crucial in this market, to ensure all parties have a smooth and stress-free closing.

If you’d like to get preapproved or determine your purchase power, please contact us.

Best Regards,

Rob McCarthy

Senior Mortgage Advisor

www.101Loan.com

650-465-8957 c  408-377-4123 o  408-608-1921 f

CA DRE – License # 01205444  NMLS #326829

6090 Hellyer Ave #100, San Jose, CA 95138

Products/Services/Accolades:

  1. Residential Financing for Purchases and Refinances on 1 to 4 unit properties.
  2. Reverse Mortgage Financing to include Conforming, Jumbo, HELOC Jumbo’s.
  3. Commercial & SBA Financing to include Multifamily, Office, Retail and Light Industrial.
  4. Access to over 50 banks with over 300 “Five Star” Reviews on Yelp, Google, Facebook and Linkedin.

Note: Interest rates and loan programs quoted are subject to change without notice or until locked and approved by lender.

 

Unemployment Down in Bay Area and Real Estate Staying Strong…

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A Very Interesting Week for Real Estate, Unemployment and the Dow Jones!

This week, see why the economy is coming back strong. For more info, see https://youtu.be/7DaDcWhDUdg.

Home Values

Real Estate values continue to stay strong, with multiple offers as Shelter in Place has been modified.

Just this week, we pre-approved over twice as many borrowers as with previous weeks.  Many of my Realtors are reporting buyers coming off the fence and writing offers.  Housing inventory is finally up with Shelter in Place in Phase 2 allowing Realtors the ability to list property.  Inventory is now at 2.8 months but with over 7 Million people residing in the bay area, that isn’t much!  This is great news for sellers, but not so much for buyers where supply and demand are not equal.

Unemployment

Bay Area unemployment wasn’t as high, as some expected, compared to other areas throughout California.  Marin County came in at 11.1.  San Francisco County at 12.6, San Mateo County at 11.4 and Santa Clara County at 11.7.  What is also interesting is national unemployment dropped from 15.3 to 13.3%.  In just one month, over 2.5m people went back to work which is great news for the economy!

Local, National and Global Markets

The Dow closed today at 27,110 due to the following:

  1. Economic Optimism
  2. Overwhelming Policy Response
  3. Corona Virus Uncertainty Abating
  4. Global Yields Increasing

For more info on these, see my weekly report which can be found at www.101Loan.com under Rob’s Corner.

In Closing…Noah Manning with Perspective Realty in the North Bay and myself provided a summary on the above (and more) at https://youtu.be/7DaDcWhDUdg.   (I hope you enjoy it and if you like it, please leave your comments on the channel)

I hope you have a great weekend!

All the Best,

Rob McCarthy

Senior Mortgage Advisor

408-377-4123 o  650-465-8957 c   rob@101loan.com

101 Loan – 14435 C Big Basin Way, Saratoga, CA 95070

101 Loan LLC – CA DRE #01165697  NMLS #121019

Products/Services/Accolades:

  1. Residential Financing for Purchases and Refinances on 1 to 4 unit properties.
  2. Reverse Mortgage Financing to include Conforming, Jumbo, HELOC Jumbo’s.
  3. Commercial & SBA Financing to include Multifamily, Office, Retail and Light Industrial.
  4. Access to over 50 banks with over 200 “Five Star” Reviews on Yelp, Google, Facebook and Linkedin.

Cash Out Refi’s Might Go Away?

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 First and Foremost…
I just read an interesting report on how lenders may eliminate cash out refinances on conforming and jumbo loans. We have seen the “add” for cash-out refinances get super expensive lately.  It appears the Federal Reserve doesn’t want borrowers pulling equity out of their homes.  They feel home values may go down due to the negative impact of Shelter in Place and Covid-19.
For more info, see quote and link below:
 
“Many lenders have eliminated or restricted cash-out refinances, financing for investment properties and some for second homes as well,” Cohn says. “Jumbo lenders have also tightened their guidelines.”
 
https://www.cnet.com/personal-finance/6-things-to-know-about-refinancing-right-now/ 
 
Next…
A listing agent in the east bay recently posted a great Yelp review on the service we provided her. I just love when we can help Realtors and their clients successfully & smoothly close on purchases. 
To view the review, click here: https://www.yelp.com/biz/101-loan-mortgage-san-jose-2  (See Testimonial from Bette dtd. 4/28/2020)
If you’d like the same care, please contact me.
 
Best Regards,
Rob McCarthy
Senior Mortgage Advisor
www.101Loan.com
408-377-4123 o 650-465-8957 c 408-608-1921 f
101 Loan – 14435 C Big Basin Way, Saratoga, CA 95070
101 Loan LLC – CA DRE #01165697  NMLS #121019
Products/Services/Accolades:
1. Residential Financing for Purchases and Refinances on 1 to 4 unit properties.
2. Reverse Mortgage Financing to include Conforming, Jumbo, HELOC Jumbo’s.
3. Commercial & SBA Financing to include Multifamily, Office, Retail and Light Industrial.
4. Access to over 50 banks with over 200 “Five Star” Reviews on Yelp, Google, Facebook and Linkedin.

Opportunity May Be Knocking – 1st Time Buyers May Finally Have a Leg Up!

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In the Bay Area, we have been in Shelter in Place for over 30 days. Unfortunately the flattening of the COVID 19 has not reduced the curve as much as officials have hoped.  Meanwhile consumers are wondering when they will be able to go back to some normalcy in life.

In terms of Real Estate… it continues to be in demand.  Predictions state that this may not be the case in the future, unless officials come up with a plan for consumers to stay healthy but still productive.  Real Estate continues to stay high in value since inventory is so low but with consumer confidence being low and because Shelter in Place is still in affect, properties may sit on the market for longer periods.

This is creating opportunities for first time home buyers.  Because of the stock market correction, 1st Time Buyers,  don’t have to compete with buyers that were using stocks to purchase a property or that had large down payments, putting 1st Time Home Buyers into competitive position.  In addition, sellers are getting antsy, wondering why their homes are not selling or when they may sell.

For more info on the above, about the Bay Area Real Estate Market and Current rates, please tune into my You Tube channel at 101 Loan or at https://youtu.be/-3DSUCsKQVg.

For more info on the above, about the Real Estate Market locally and about current interest rates, tune into my You Tube channel..  If you would like to get pre-approved, please contact us at www.101loan.com or complete the following questionnaire at https://101loan.com/purchasing-start/.

Any questions, please contact me at https://101loan.com/contact-us/.

All The Best,

Rob McCarthy

Owner and Senior Mortgage Planner

101 Loan LLC

With the Federal Reserve Lowering Rates, Why Have Mortgage Rates Gone Higher?

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As you know the Federal Reserve lowered rates, specifically the Fed Fund was lowered to 0.  This means the bank lending rate has dropped, lowering rates at the street level at tad, but no-where near where they were weeks ago when rates were lower.

Rates are still up because of the following…

  1. Lenders are slammed with so much business. Their turn times are much slower now.  This has caused them all to increase their rates to handle the volume they currently have locked.  By lenders increasing rates, their incoming business slows down allowing them to catch up.  Once they catch up, they typically will lower rates again.
  2. The Corona Virus has forced employees at banks to work from home, slowing down the virus.  Working remotely unless completely set up for this, has caused a slow down of work efficiency causing work delays.
  3. See my response from a few weeks ago below on what a Fed Drop really does*
  4. Lastly, unrelated to rates, County Offices have closed and many appraisers are staying home and not taking on new business.  This will cause further back-ups for lenders and consumers.  We know this is short term (hopefully only a week or so) but this will delay “most” refinances and purchases from closing in the near term.

Update on Rates from a Few Weeks Ago…

Clients are Asking…Why Have Rates Not Gone Down Today?

As you may know the Federal Reserve lowered the Fed Fund by .5% today.  You may be wondering how this will affect interest rates you are seeing for your home mortgage.

I hope the following sheds some light on the subject:

Typically, a Fed cut has no direct effect on mortgage rates.  The Fed Fund (which they lowered) is the overnight lending rate.  Banks charge this to each other when they have a surplus of reserves (deposits) required by the Federal Reserve.  Banks have to keep a certain amount of reserves in relation to their deposits and so when they get more than what they need, they lend out the surplus to other banks that are short in reserves using the Fed Fund Rate.  So what does this mean to you the home owner?

A fed cut like today’s, lowers rates on bank products like car loans, business loans, credit card rates, home equity rates.  Mortgage loans, however are influenced by Fannie Mae and Freddie Mac, Portfolio Lenders and of course Mortgage Backed Securities and Bonds.  In short, when the Dow or Nasdaq starts falling, investors put their money into MBS’s and Bonds causing mortgage rates to go lower.  When the stock market corrects and starts going back up, these investors quickly move their money back over to equities and mortgage rates we see, typically go up.

Now, the reason we have seen rates drop in the past week or so is due to market uncertainty.  The Corona Virus and its impacts local, national and international markets.  Example, if Apple can’t manufacture cell phones in China due to impact of the Corona Virus, their sales and revenue will significantly drop negatively.  This will affect their stock price and stock market as seen in the last week or so.  The Federal Reserve is worried that this will happen to other industries such as travel, manufacturing, tech, etc so they are being proactive in lowering the Federal Fund Rate.  Eventually this move will filter down to interest rates for home loans, but in the near term it will not as seen last year with 3 Fed Fund drops (last year) only resulting a slight reduction of mortgage rates.

Conclusion…

Rates will definitely go lower, but unfortunately it will take some time to do so based on the factors above.  When rates do drop, we will update you so you can take advantage of the rate and payment savings.  If you would like to get in ready position so you can act quickly when rates do drop, please contact us.

Best Regards,

Rob McCarthy

Senior Mortgage Advisor

www.101Loan.com

rob@101loan.com

408-377-4123 o  650-465-8957 c   408-608-1921 f

101 Loan – 14435 C Big Basin Way, Saratoga, CA 95070

101 Loan LLC – CA DRE #01165697  NMLS #121019