What's Hot in Residential and Commercial Financing

This is the time of year that investors, from newby to expert, begin looking for creative new products in the wonderful world of finance.  Like everything else there are trends and patterns that seem to develop every year. Mainly, because banks like to push new products to keep consumers coming back.  Secondly, once a hot new program hits the streets investors spread the word.  This article is the “word” that is spreading.  If you haven’t heard the word then you’re not too late.  In fact, you’re just in time because by now all the bugs have supposedly been eliminated.  If you are a minion of the word then here is a chance to see your labor hard at work.

With the doomsday craze circling Adjustable Rate Mortgages (ARMs) and the supposed collapse of the subprime market, one would wonder what is possibly going to offset this doom and gloom.  In 2007, we are seeing increasing numbers of investors and homebuyers continue to use the black sheep of the financing world also known as ARMs.  Why?  Perhaps they still make sense.  Or should we say “cents”.  For Jamillah Lohay, it is about “doing what others won’t do”.  You have to do what others won’t do in order to get what others won’t get.  Using the black sheep will only cost you an arm-and-a-leg (pun intended) if you don’t know what to expect.  Expect the Adjustable Rate Mortgage to inevitably “adjust” if you don’t refinance or sell the property.  So we are not saying that ARMs are hot in 2007.  What we are seeing is the use of Reverse ARMs!  Traditionally, ARMs are fixed for a set period of time, say 3 or 5 years, and then they adjust for the remaining years of the loan.  With these new Reverse ARMs the rate adjust in the beginning of the loan and then is fixed for the remaining term.  For example, your starting rate would be 5% for the first year, 6% for the second year, and then fixed for remaining 28 years.  Obviously, you can see how the fear of the unknown is removed from ARMs if you know from the beginning what and when your rate will adjust.  If you used a Reverse ARM on a $150,000 house then you would save over $3,500 in payments over 3 years based on the example above.

 

Most people thought we were crazy when we started offering 40 and 50 year amortizations (terms) on investment and primary residence property.  We quickly forget that in many Asian countries a 75 year mortgage is standard.  Incidentally, the amortization term is irrelevant when you use interest only loans because you are only paying simple interest on the outstanding principal balance, so spreading that out over more or less time does not affect your payment.  Commercial real estate investing is one of the fastest growing segments of the market and interest only terms have long been preferred; however, many investors and banks can’t qualify for or don’t offer the interest only option, respectively.  So, what’s an investor to do who can’t get interest only and still wants the lowest possible payment?  They opt for the new 40 year amortization commercial loans.  That is right!  40 year amortization on commercial loans is one of the latest and greatest products that investors are using. Most of you know that many commercials loans are fixed for 2 or 5 or 10 or 20 years even though they may use a 30 year amortization.  With this new loan you can have your cake and eat it too because the loan is amortized over 40 years and fixed for 40 years.  When you are considering the short term benefits of interest only as compared to the long term security of a 40 year fixed rate then several more variables must be evaluated.

 

If you thought 40 year amortization loans is the hottest thing in commercial financing then keep reading.  You are probably used to hearing about investors putting 20% or 30% down on their commercial deals.  When we introduced 90% LTV (loan-to-value) or 10% down commercial loans many people looked for “the small print”.  They eventually realized that these are real loans and the rest of the investment community eventually took notice.  How in the world do you improve on 90% LTV commercial loans?  You make them 97% LTV commercial loans.  That is right!  There is currently 3% down commercial loans available.  At this writing this program is hot off the presses and expect many investors to take advantage.  One of the biggest hurdles residential investors face with transitioning into commercial is the hefty down payments.  Well those days are going away slowly but surely.

It won’t long before zero money down or 100% LTV commercial loans are knocking down our doors.  As the barriers to entry decrease and supply and demand shifts then you will see even greater opportunity in the commercial markets.  Look for more creative solutions to the sub-prime tsunami and the exotic loan programs from the past.  Keep tuned for the next “hot” products in commercial and residential financing.   

Comments

[rajun]

Hi,
Commercial Finance is a generally applied term for more than a couple of things. The term finance applies to the commercial activity of providing funds and capital.This commercial financing article will describe the importance of avoiding problem commercial lenders.Such banks will typically attach onerousCommercial Financing conditions to business loans instead of simply declining the loan.

[Pallavi]

Commercial mortgages are loans taken for the purchase of property that is, only intended for business or commercial use.It is necessary to get commercial property financed, at a competitive rate as it directly affects the finances of the organization.Commercial Mortgage Brokers provides detailed information on Commercial Mortgage Brokers.