You’ve just received a letter with the renewal options your financial institution is offering on your commercial mortgage.
How can you assess the competitiveness of the offer before you? The letter arrives at a time when you’re extremely busy.
Is it worth your time to research and explore other options?
Often the renewal letter will arrive only a short time before your existing term expires. That could necessitate you exercising a short-term open mortgage at a much higher rate to give you time to explore the options.
It would be wise to make a note for yourself to start researching market rates about three to four months prior to the term expiration.
Speak to others you know who are active in commercial real estate to determine current market rates. There are times when we see significant swings in the rates that financial institutions are offering.
Don’t be afraid to ask
At the very least ask your account manager if they can do better. If you’ve done your homework and know what rates other institutions are offering be sure to use that comparable data in your conversation.
Your negotiating position may depend upon many factors beyond your credit worthiness: what is your financial depth? How prompt have you been in providing your required annual reporting information? How many commercial mortgages do you currently have?
Here’s my own recent renewal experience.
I received notice on two commercial mortgages which were renewing at the same time.*
I was not pleased with the rate offered in the notice and was prepared to explore other financing options. My business partner and I immediately met with our account manager.
Consider exploring other options
He explained the notices were sent without his input and offered to reduce the rate by one per cent. We knew what was available in the market and suggested we needed to see an even more competitive offer.
After some diligent work on his part, he came back with a further 30 basis point reduction, which we agreed to.
It’s just impossible to be aware of all the companies that would love to finance your property.
There are a lot of advantages in engaging a mortgage broker.
If it is your intent to shop for options. Be sure to advise your existing account manager; it can provide you additional leverage to ensure they sharpen their pencil and offer the best rate available.
* We at ICR Commercial Real Estate have made a commitment to our clients that we will not buy, lease or develop commercial real estate within the primary market that we live and work.