Commercial Investment Loans

When a borrower is seeking a commercial investment loan whether to purchase a commercial property or to refinance an existing property one must consider the loan points also known as loan origination fees charged by the lender as well as, discount points offered by the lender. Points charged are a significant income generator for the lender. Each point is worth 1% of the loan amount. Therefore, if a lender charges 2 points on a $200,000 loan the cost to the borrower is $4,000 or 2% of the loan amount. These points are generally paid up front at the time the borrower obtains the loan, normally by reducing the borrowers cash proceeds. For commercial loans the points are tax deductible over the life of the mortgage. For example, if the $200,000 loan has a ten year term, the borrower can deduct $400 per year from their taxes ($4000 divided by 10 years). If the borrower paids off the loan prior to the expiration of the ten years, the unused portion is deductible in the year of sale or refinancing of the mortgage. The borrower should keep in mind that the greater the risk to the lender the higher the points.

Another factor the borrower should consider are discounts points whether to pay or bypass. A discount point is a fee paid to the lender up-front to lower the interest rate on the loan. This may make sense to the borrower if the mortgage is going to be retained for a long period of time. To determine whether to pay for a reduced interest rate, the amount of money saved over a period of time from a reduced interest rate should be more than the cost of the discount fee paid.