How Do Pre-Payment Penalties Factor in on Your Loan Decision?

[John Casmon]

Most investors I speak to focus on the interest rate and LTV (loan to value) when seeking a commercial loan. Unfortunately, many are not paying as much attention to the pre-payment penalties. In today's climate I know many value-add investors are avoiding bridge loans and seeking longer-term, fixed debt. How are you managing/negotiating the pre-payment terms in case you want to exit sooner?

If you are using bridge loans, how did the pre-payment penalties factor into your decision? 

[Greg Scully]

@John Casmon - We have a bridge loan with no prepayment penalties.  Shop around if you're finding that in the terms.

For fixed debt, we prefer step-down penalties over yield maintenance, community banks may negotiate on the pre-payment terms.