Creative ways to refinance with prepayment penalties?
How are you pulling out cash on your properties you add value to if your loan has a prepayment provision?
[{"id": "he38uu9", "text": "I\u2019ve actually never cash out refi\u2019d and have only used equity lines.  I prefer lines anyway (even though the rate will be higher) because you only have to pay interest when actually using the money, and after paying it down you can use it again.\n\nLots of people disagree completely and prefer cash out refi.  But either can theoretically work out for you.  Good luck!", "replies": [{"id": "he47j8j", "text": "How long are your credit lines for? How many years? And how much higher is the rate than mortgage?", "replies": [{"id": "he4cfhl", "text": "The credit lines renew every 5 or 7 years.  Mine are with a 3 branch bank local to me, and they know me very well, so i don't have to worry that they would pull the lines out from under me someday.\n\nThe rates float.  Mine have a 4.25% floor (which they've been at for a while).  I've heard other people on here with lower rate lines, i don't know from where.  For comparison, we closed on a commercial investment mortgage a few weeks ago at 3.85%.\n\nThe thing about cash out refi is as soon as you get the money, you're paying interest on it.  If it takes 6-8 months to find something to buy, you're paying interest that whole time.  I prefer the equity lines where i only pay when I'm using the money.  But either way can certainly work!", "replies": [{"id": "he5csxh", "text": "ahh got it, you're a smart guy thx", "replies": [], "depth": 4}, {"id": "heztvmt", "text": "Just to confirm you have both a mortgage and a LOC on the property I\u2019m assuming? What\u2019s your all in LTV?", "replies": [{"id": "hf2ryvk", "text": "70%.  The other bank I had a quote from would have let me go to 75% but I didn\u2019t like their mortgage terms as much.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "he3fx0s", "text": "Either (1) Cash-out refinance where the delta between current loan and new loan exceeds the prepayment penalty, (2) ask for a loan modification from your current lender, or (3) do nothing and hold until the prepayment goes away. These are pretty much the only options. Prepayment penalties are there for a reason - to guarantee a minimum yield for the lender.", "replies": [{"id": "he47k0k", "text": "Makes a lot of sense. Thanks!", "replies": [], "depth": 2}, {"id": "he47qvp", "text": "To add another important point that some people are not aware of: Credit Unions typically do not have prepayment penalties on commercial loans. Pricing is competitive to banks and could be a good option for someone without a clear 5 year timeline for the property", "replies": [], "depth": 2}], "depth": 1}, {"id": "he3j0zy", "text": "Prepayment penalties usually compensate the lender for taking additional interest rate risk... did you get a loan with a long term or were you hoodwinked into a 5/15 with a 5,4,3,2,1 on it?", "replies": [{"id": "he6hs0j", "text": "Ooof - those terms - oof", "replies": [], "depth": 2}], "depth": 1}, {"id": "he3shfa", "text": "Have you looked at HUD multifamily loans? Only really makes sense for 20+ units and if you can wait a year but: If your property has stabilized for at minimum 30 days, cap your stabilized NOI at the appropriate rate. If 80% of that value is greater than your costs to refinance (existing debt + PPP + repairs + fees + loan closing charges), you could potentially cash out.", "replies": [], "depth": 1}, {"id": "he3xdoe", "text": "The loan I have allows for you to pay off the loan with your own money without penalty. Find the cash from whatever source, pay off the loan, then switch banks and take out a new loan.", "replies": [], "depth": 1}, {"id": "he44icu", "text": "You can add an additional loan subordindate to the senior with the prepayment penalty that is coterminous with it. This will have a higher rate but blended should not be too bad.\n\nPreferred equity would also work.", "replies": [{"id": "he4ix5e", "text": "For OP: this will only work if the Senior debt allows subordinated debt to follow it. Many will not permit this; consult your loan docs.", "replies": [{"id": "he4kah7", "text": "This is accurate OP. Last time I did this the loan docs explicitly permitted it.", "replies": [{"id": "he5371k", "text": "I'm gonna guess you had a good lawyer helping you negotiate docs or the Lender had a shitty one haha", "replies": [{"id": "he53ycw", "text": "Buyer got a cmbs loan and was concerned they would be locked in if the property stabilized so they got it written into the loan docs that they could take a certain amount of pref added on later.\n\nLoan was a couple hundred mil so everyone had great lawyers.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "he4ppio", "text": "Lender here! I really shouldn\u2019t even say this but . . . **It\u2019s not hard to get prepayment penalties waived**. The easiest way would be to offer to move all of your deposit accounts to their bank, assuming you have liquid assets. You can also, ya know, *just ask*.", "replies": [{"id": "he5mpvo", "text": "Love advice from an insider. Thanks!", "replies": [], "depth": 2}, {"id": "he6hk9t", "text": "This - ask. \n\nYou never know what you can get.", "replies": [{"id": "hegxm0z", "text": "Always ask. The worst they can say is no. \n\nAnd the amount of stuff they\u2019ve waived for loans for me just on a single request (literally \u201chey, can you waive that?\u201d) is astounding.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "he59q5g", "text": "Supplemental loan\n\nGo get a preferred equity or a mezz debt lender to put a \u201csoft second\u201d on", "replies": [{"id": "he5v0xv", "text": "Does anyone negotiate no prepayment penalties if buyer assumes the loan? Maybe only subject to 1%? How isn\u2019t this more common?", "replies": [{"id": "he6i4om", "text": "I do a 2% for 5 years on my prepayment penalties.\n\nI offer that just based on ease of exit and 2% isn\u2019t going to change my math on a value added exit.\n\nAlso many banks will let you walk on the prepay if it\u2019s a sale and you\u2019re willing to do another deal with them.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "he66t6w", "text": "Find a lender that wants your business.  It will purchase the existing loan at par from your existing lender and leave all terms in place, then add a second loan at below market terms such that the blended rate is at current market and maturities coterminous. \n\nTitle company will provide assignment of existing lender\u2019s policy. New lender\u2019s counsel will review and sign-off on existing security interest, borrower\u2019s counsel opinion letter, etc. Existing lender will want a non-recourse provision in the purchase and sale agreement. \n\nThe existing lender cannot charge the prepayment fee as the loan is not being \u201cprepaid prior to mat.\u201d\n\nThis may incentivize the existing lender to provide the same structure, thus retaining the client and loan. Presuming lender wants the client. \n\nThis all presumes that the loan is not held by CMBS.", "replies": [], "depth": 1}, {"id": "he6jxhc", "text": "**If you want cash out, just ask your existing lender** to slap on a second loan cross collateralized-cross defaulted by the current loan. The second loan will have completely different terms but be secured by the same collateral (ie, a second mortgage, but not a separate lien because it\u2019s crossed with the 1st lien).", "replies": [], "depth": 1}, {"id": "heajvyf", "text": "Cash out refi with the lender that currently has the loan", "replies": [], "depth": 1}, {"id": "hew313p", "text": "There\u2019s complex ways to go about it, but if you can just get enough cash out on the refi to do the loan problem solved is simple enough. My CRE FHA loans are no loan to cost constraints, only value based and it\u2019s 80% LTV. Let me know if you have any questions.", "replies": [], "depth": 1}]