{"id":1004097728,"date":"2014-06-04T08:45:35","date_gmt":"2014-06-04T16:45:35","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004097728"},"modified":"2022-12-01T06:33:32","modified_gmt":"2022-12-01T14:33:32","slug":"refinancing-dilemma-pay-now-or-lock-in-later","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/refinancing-dilemma-pay-now-or-lock-in-later\/","title":{"rendered":"Refinancing Dilemma: Pay Now, Or Lock In Later?"},"content":{"rendered":"

By Brandon Harrington, Senior Vice President & Matt Steffen, Vice President, Capital Markets, Walker & Dunlop<\/em><\/p>\n

\"Marcus<\/a>There is a tremendous amount of multi-housing debt maturing in 2014, 2015 and 2016\u2013$200 billion in 2015 alone\u2013an imposing tsunami of maturities.<\/p>\n

In today\u2019s capital market, multi-housing investors with maturing debt are facing a quandary. On the one hand, refinancing is an option because interest rates are still at or near historically low levels. On the other hand, it\u2019s hard to stomach paying a stiff pre-pay penalty in order to take advantage of today\u2019s low rates. Should an investor shoulder that pre-pay penalty now and refinance, or does it make sense to wait a year or two?<\/p>\n

Although there is ample multi-housing capital available in today\u2019s market \u2013 an estimated $300 billion in 2014 \u2013 there is also tremendous uncertainty about interest rates moving forward. Easing of monetary policy by the Federal Reserve and a rising 10-year U.S. Treasury that is projected to end 2014 around 3.5 percent could be signaling the \u201cend of the tunnel\u201d for historically low interest rates. While capital is prevalent, will the money still be available when the wave of maturities crest or will investors have to scramble? Investors hear about rising interest rates everywhere they go \u2013 is there a way to lock in a low rate today?<\/p>\n

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When the Low Rate Music Stops<\/b><\/p>\n

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For a borrower who has a loan coming due in 2015, a forward rate-lock can be an attractive way to take the risk out of the rising interest-rate environment, as well as any jarring economic or geopolitical events that could change the capital landscape. A forward-rate lock simply means committing financing on a property now with a rate that is locked in until the loan funds in 2015. It\u2019s like having a guaranteed chair in the game of interest rate musical chairs. Not only that, but a 12-month forward rate lock will help burn off a potentially costly pre-pay penalty.<\/p>\n

Pros and Cons of Forward-Rate Lock<\/b><\/p>\n

Naturally, the key question on the mind of many investors who are reading this article is: Does the cost to lock in an interest rate now outweigh the anticipated higher interest rates 12 to 18 months from now?<\/p>\n

We believe there is more risk and uncertainty in waiting until the existing note comes due. Here\u2019s why:<\/p>\n

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