Commercial loan terms on loan amount above $1M

[Cheryl Fung]

Hello BP,

I'm in CA and need some advice on some commercial lending terms.  A lender provided some loan options for a 10 unit building.   I'd like to know if the terms provided are typical of today's commercial lending environment if I should take the 5,7, or 10 year fixed.  Our long term goal is to hold the property, which was inherited from parents and they kept the loan to maturity.  We are financing to leverage for more multifamily investments. 

LTV is around 55-75% (loan amount around $1.3M to $1.7M)

Interest rate with 0.05% origination fee: 5yr 3.32%, 7yr 3.95%, 10yr 4.17%

Interest rate with 1% origination fee: 5yr 3.2%, 7yr 3.85%, 10yr 4.09%

Margin: 2.75% 6 month Libor.  Is this negotiable and what is a fair number?

Rate lock deposit: 1.00% refunded at closing.  I plan to negotiate this and want to know what is reasonable.

Non recourse

20 year term with 30 year amortization. Does this mean in balloons in 20year and I'll have to pay off the loan?

Prepayment penalty: 5/5/4/4/3/3/2/2/1/1 for the 10 year.  similar pattern for the 5yr and 7yr.

They also offered a recourse option:

Interest rate: 5yr 3.15%, 7yr 3.9%, 10yr 4.25%

Margin: 2.55%  on 12MAT index

Prepayment penalty is lower for the 5yr and 7yr (1.8% for the first 5 years and 0.08 for the last 2 years), but not for the 10yr.

30 year term and amortization

In general, the loan terms don't sound bad to me. Just need some help in choosing the right option.  Since we are holding the property for the long term, my gut tells me to go the 10yr fixed non-recourse route, but the lower interest rate for the 5 yr is appealing.  Is the savings of short term loan worth the risk it bears.  I hope the scenarios above aren't too confusing to the pros out there.  They sure confuse me!!!  Thank you in advance for your help.