How Commercial Mortgage Modification May Contribute To The Economy
Economic experts have been foreseeing the emergence of a crisis in the commercial property market that could even be worse than that situation in residential housing. The continued rise in the number of people losing their jobs and the rising number of vacancies in commercial real estate are like dark clouds indicating that a storm is brewing. This is a logical prediction because the end result of this kind of situation are problems for the property owners in making the monthly installments. And if they could not make the monthly payments, it naturally follows that they would not also be able to make good with the balloon payment at the end of the loan term. Just like in the residential real estate market, this could ignite a series of defaults and foreclosures that could further bring down the economy. It is here where commercial mortgage modification could provide assistance to the ailing property owners, the banks and the economy as a whole.
One strategy is for the lender to approve a temporary or permanent reduction in the interest rate so that the property can avoid foreclosure. Even bringing down the rate by one percent could reduce the debt burden by thousands of dollars each month. In this way, commercial mortgage modification could help much in offering some space for the borrower to breathe while looking for more tenants and while waiting for the economy to get better.
Another commercial mortgage modification strategy is to extend the maturity of length of the loan. This is helpful in putting off the balloon payment or even avoiding it completely if refinancing could be obtained later on and it will also decrease the monthly payments. Commercial loans usually have balloon payments because the monthly installments are often based on a longer term than the actual duration of the mortgage. To illustrate, the monthly payments may be computed with 25 years as the loan duration but the real term may only be for 10 years. Thus, a large amount is still unpaid when the end of the term is reached. During better times, the commercial property borrower will either find a buyer for the property or search a bank to provide another loan to in order to come up with the balloon payment. But with the economic crisis where there are less available funds and property values have dropped substantially, looking for a source of funding could be tough. The same could be true when looking for possible buyers of the property.
A commercial mortgage modification may also allow the property owner to stop paying for a while. The bank may allow the property owner to skip payments for three to six months without any penalty charges, for example. This will provide the mortgage borrower with more time to gather some funds and find ways to decrease the vacancies.
Meanwhile, commercial mortgage modification is also one of the workouts that are being touted by bank regulators to help the banks remain viable. This is expected to minimize the number of foreclosures that could further damage the economy.
One strategy is for the lender to approve a temporary or permanent reduction in the interest rate so that the property can avoid foreclosure. Even bringing down the rate by one percent could reduce the debt burden by thousands of dollars each month. In this way, commercial mortgage modification could help much in offering some space for the borrower to breathe while looking for more tenants and while waiting for the economy to get better.
Another commercial mortgage modification strategy is to extend the maturity of length of the loan. This is helpful in putting off the balloon payment or even avoiding it completely if refinancing could be obtained later on and it will also decrease the monthly payments. Commercial loans usually have balloon payments because the monthly installments are often based on a longer term than the actual duration of the mortgage. To illustrate, the monthly payments may be computed with 25 years as the loan duration but the real term may only be for 10 years. Thus, a large amount is still unpaid when the end of the term is reached. During better times, the commercial property borrower will either find a buyer for the property or search a bank to provide another loan to in order to come up with the balloon payment. But with the economic crisis where there are less available funds and property values have dropped substantially, looking for a source of funding could be tough. The same could be true when looking for possible buyers of the property.
A commercial mortgage modification may also allow the property owner to stop paying for a while. The bank may allow the property owner to skip payments for three to six months without any penalty charges, for example. This will provide the mortgage borrower with more time to gather some funds and find ways to decrease the vacancies.
Meanwhile, commercial mortgage modification is also one of the workouts that are being touted by bank regulators to help the banks remain viable. This is expected to minimize the number of foreclosures that could further damage the economy.
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