More Koreans are opting to refinance their commercial real estate properties. As the standard interest rate is expected to rise on several occasions throughout this year, property owners are aiming to reduce their interest rates by refinancing before it goes up even further as even an increase of 0.5 percent could be a considerable burden.
The current interest rate on commercial real estate property has already surpassed 4.5 percent, although it only remained at 3 percent until the final quarter of last year.
Buyers of commercial real estate generally make their payments over five to seven years, but those with only a year or two remaining in their loan payments are increasingly applying for refinancing. The interest rate five years ago was relatively low, and the recent resurgence has convinced them to refinance their loans even if that means they are levied pre-payment penalties.
“The penalty is about 1 percent,” said a commercial property owner in Koreatown. “It’d still be better to refinance considering the rise of interest.”
The Wall Street Journal also reported that the size of refinanced loan deals among corporations in January alone combined for approximately $100 billion. That amount is reportedly after a combined $10 billion was saved by refinancing their deals.
However, some banks are showing an aversion to customers who have attempted to refinance their commercial real estate property loans. For the banks, allowing the property owners to refinance their loans could mean that they may miss out on cashing in from the rise of interest rate.
Hence, bank representatives are suggesting that simply following everyone else to refinance the loans may not be the wisest decision.
Instead, it is advised that property owners should consider various factors, including their remaining balance as well as relationship with the banks. Property owners are especially encouraged to make a decision based on the amount of their pre-payment penalties versus how much they could save by refinancing.
The conditions of individual property owner’s loans may vary and that could mean that refinancing may not be the idea decision for all.
By Sung Cheol Jin