Important: Refinance your current loan to avoid a balloon payment prior to maturity date.  - Read more.

Benefits of Refinancing Your Multifamily Apartment Project While Rates are Historically Low


Refinancing comes with countless benefits, and while the rates are historically low, now is a great time to improve your loan.

Refinancing can enable you to:

  • Increase your cash flow, by reducing your current principal and interest payments.
  • Distribute equity to your investors and self, to pay back part or all of the initial investment.
  • Invest in projects and build a multifamily apartment portfolio.

Additionally, taking cash out to perform capital improvements can be a great option to attract potential renters. It can also decrease expenses, with investment in more efficient energy and water usage. 

This process can also increase the value of your asset. By making improvements you will be able to justify increased rents and be more competitive with similar apartment communities.

Increasing your Net Operating Income (NOI) on a multifamily project allows you to borrow more loan proceeds and cash out more equity.

Why Refinance Now?

Rates are significantly low. It is a great time for investors that have a current mortgage with a life company, bank, Fannie Mae, or Freddie Mac to refinance, particularly if their current loan is coming to maturity and a balloon payment is due. The first step is to determine if a lower interest rate would offset any prepayment penalties that may be due on your current loan.

How Do I Know If Refinancing is Right for Me?

Every project is different, and every financial situation is unique. Here, we outline how to determine whether to refinance, with the help of a professional and by performing key calculations.

Key Calculations for Refinancing

There are a handful of key calculations that can help you determine whether refinancing is right for you:

  • NOI is one of the biggest factors impacting how lenders value apartment projects. NOI is rental and ancillary income, minus property expenses. 
  • It is important to compare the current debt service coverage ratio to the proposed one. To calculate debt service coverage ratio, take the project’s NOI and divide it by the annual debt payments of the existing mortgage and the proposed transaction. 
  • Another important item to calculate is the interest owed on the current loans’ amortization schedule compared to the proposed transaction.

How you choose to improve your loan is up to you. Some apartment owners prefer to keep the principal and interest the same and reduce the remaining loan term. Other borrowers choose to recast and extend the term for as long as possible, to reduce the principal and interest payments as much as possible. 

Request a Loan Analysis

Ask an experienced broker or lender to provide a detailed loan analysis to determine whether refinancing is right for you. A loan analysis will supply you with the data you need to accurately compare your current mortgage to the loan you wish to consider. 

A good loan analysis will provide you with everything you need to know to make an educated decision, including:

  • Details of the current market rates.
  • Closing costs.
  • Estimated third-party reports that will be required.
  • Broker, lender, agency, or FHA costs associated with the transaction.

If your current loan matures in less than 3 years, a loan analysis is key to weighing up your options. An expert will be able to calculate whether refinancing is right for you. They will factor in refinancing costs, interest rate reductions, pre-payment penalties and the opportunity cost of not refinancing, bearing in mind the likelihood of future rate increases. 

Contact LSG Lending Advisors Today

LSG Lending Advisors can help you find the best loan for your multifamily apartment project, saving your money and keeping costs low. Contact LSG Lending Advisors today for a free consultation with a refinancing expert.

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