Good for you, not sitting on the sidelines right now. I’m going to focus on commercial loans, because these are the ones that vary. Residential loans are pretty similar from bank to bank. Banking is a relationship business. Don’t lose a great relationship because you want to scrape every last dollar out of the bank.
Rate
The federal funds rate went up again recently, but there’s talk of slowing down the increases. Lending rates went down a little this week. If I got a loan right now, I’d expect 6.5% for my rate.
Variable vs Fixed
With the volatility, most of these loans will be variable. As an investor, you might not want to get a fixed loan and lock in your 6.5%. I know variable seems scary, but it’s really the way to go right now. Otherwise, shoot for a shorter term and keep the 6.5% if you think the rates are going to go up. Oh, and make sure your numbers work for that high of a rate.
Term
Term is not very important right now. Because rates are so volatile and the loans are mostly variable. I wouldn’t worry about this too much. 5 years is what I expect, though I’ve seen some 10 years.
LTV
This doesn’t really depend on the market but more on your experience. This is where your relationship with the bank helps. It’s a difficult time full of variability so I recommend at maximum 75%, but wouldn’t feel bad at 65 or 70.
Amortization
Also, not affected much in this market. Most commercial loans will be 20 but if you shop around you can find 25 or even 30 years. Also a relationship with the bank kind of thing. They don’t like their money to be tied up so long unless you are really valuable to them.
It’s a Negotiation
Remember that you can negotiate on terms. Also remember that changes in these terms usually have a small effect on the bottom line – less than you might think. Squeezing every last drop out of the orange means there is nothing left – and probably you’ll have to find a new bank. Let me know what terms you’re finding right now.
