Prepayment Conditions: What to Expect With Your Commercial Mortgage Up to $5M
Most commercial property loans – just like residential mortgages – are designed to be paid to full maturity, on a set schedule, through payments at predetermined intervals on predetermined due dates. So what happens if the borrower wants to pay down the loan early, or make larger than usual payments on the balance?
Due to the large sums of capital involved in the mortgage transactions, and the large portion of capital the lender receives from interest payments, commercial property loans typically include rules or restrictions around prepayments.
On very large, syndicated or securitized commercial mortgages, prepayments may not be permitted at any point during the life of the loan. This is known as a “lockout.”
Alternatively, some commercial mortgages may stipulate that prepayments can only be made after the borrower has paid on-schedule for a certain portion of the loan term – after the first two years (a “lockout period”) of a ten-year mortgage, for example. This is often seen with commercial property loans under $5M, which are a specialty of the experts at InvestmentProperty.loans.
On other occasions, the loan agreement between the borrower and the lender may include a prepayment penalty fee, which may include certain parameters around yield maintenance and/or defeasance.