We have an opportunity to refinance with a different local bank. They are offering much better rates.
Our interest rates at current bank are:
5.75%-6.15%
25 years
fixed 7 year increments
This bank called us today to see how we were fairing and offered us a 2 month payment deferment; they would have us payback at the end of our loans. We don’t need the help yet, but we are pumped that they are making sure we don’t go belly up during the Covid-19 crisis.
The New bank is offering to refinance us at:
4.5 %
25 years
fixed 5 years increments (option 2: 7 year increments at 4.75%)
But they do not offer any deferment. They would offer loans if we got in trouble during the pandemic.
Right now, we think that the majority of our tenants will be paying April’s rent and overall we think our tenant base can weather this storm. But then again this is all new territory for all of us.
We would like to know your thoughts. I current bank said they could lower our rates down to 5.5% and simply do a loan modification and not have to pay the expenses of a refi.
Is it a no brainer, to save a ton of money and raise the monthly cash flow by a lot or stick with the bank that has your back during while we ride out this storm??
Path of least resistance is to amend terms with existing lender until the dust settles. Try to get them lower (5%?) but make sure they know that you wanted to stay loyal. The reality is 50-100bps shouldn’t move the needle for a few months unless you did a bad deal. Optionality is more valuable in times like this so just keep other bank on the back burner. Rates will be going lower from here. Spreads will tighten again once volatility eventually subsides.
Given that there’s a large amount of uncertainty about covid and its economic impact, I would stand pat for ~3 months and just make sure my business is going to be okay, and then go out and shop for a lower rate. When you shop I would still give your current bank a chance to match or come close to the rate.
(ps you didn’t mention if there was a prepayment penalty in your current loan, that would be a factor)
Refinance is a no-brainer. The government is putting a moratorium of foreclosures and are encouraging or forcing deferrals. Thus, you bank isn’t doing you any favors that any other bank wouldn’t be doing.