Fixed for 5 years than ARM

[Casey Walker]

Refinancing a commercial property and the bank is saying because it is zoned commercial and has a large garage in addition to the duplex that I have to use a commercial loan.   5 years fixed at 4% then adjustable to the wall street journal prime rate.  If the rate in five years goes up to 10% then the payment would go up another $1,000 a month.  

Do I have any options to get a commercial loan with the rate locked in?

Thanks

[Jaysen Medhurst]

@Casey Walker, the first thing you need to do is talk with some more lenders. They may not all see this property the same way. It always pays to shop around.

A 5-year rate adjustment is pretty standard on commercial mortgages. A few things to understand:

• Usually there is a limit to how much the rate can jump at each reset. If the rate resets every year starting at year 6, then it will probably only go up 1 point per year. This is something that you want to confirm with your lender.
• There is usually a maximum rate and minimum rate. The max will vary, but usually 400-600 bps above what the initial rate is. The minimum is typically the initial rate.
• If rates did rise that much in 5 years, there are a lot of other economic factors at play. That would typically suggest an inflationary environment where values (and rents) are also rising quickly. So, an extra $1000/month may be manageable or you take the gains and sell. None of this stuff happens in a bubble.