Commercial Refinancing

Refinancing commercial property involves replacing an existing mortgage with a new loan, aiming to reduce monthly payments, alter loan terms, leverage property equity for improvements, or expand a commercial property portfolio. However, before delving into the process of refinancing commercial real estate, it is crucial to comprehend the advantages and disadvantages, along with understanding the associated costs and lending requirements.

What does commercial property refinancing entail?

In the realm of real estate, commercial property refers to buildings or land utilized for business purposes, encompassing office buildings, industrial properties, retail spaces, and even multifamily housing like apartment buildings. Commercial real estate financing closely mirrors residential mortgages, with commercial loan refinancing akin to refinancing a mortgage on a residential property. This process involves utilizing funds from a new loan to settle an existing one. Typically, borrowers opt for refinancing when eligible for more favorable terms, such as a lower interest rate or a different loan type. Refinancing also facilitates property owners in accessing the cash represented by their home equity, thereby enhancing cash flow.

Pros and cons of commercial property refinancing:


  • Lower Monthly Payments: Refinancing is often pursued to decrease monthly payments, achieved by securing a lower mortgage rate than the existing loan.
  • Improved Loan Terms: Adjusting the loan repayment term or type can be advantageous, offering stability in payments, especially when transitioning from an adjustable-rate loan to a fixed-rate loan.
  • Avoidance of Balloon Payments: Commercial loans may involve balloon payments, and refinancing can help circumvent the challenge of making a substantial lump-sum payment at the end of the loan term.
  • Equity Take Out Refinance: This type of refinance allows borrowing additional funds beyond the current loan amount, providing cash for property improvements or new investments, and potentially yielding tax-free proceeds.


  • High Upfront Costs: Similar to the initial loan acquisition, refinancing incurs closing costs. It is essential to ensure that the anticipated savings from the new loan outweigh the upfront fees.
  • Potential Prepayment Penalty: Refinancing before the loan maturity may trigger prepayment penalties from the former lender, adding to the overall costs of the refinancing process.

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