Should I refinance commercial loans?

[Jerry Poon]

I have a few commercial loans with 10-12 years left on them. The rates are held for the life of the loan. I asked my commercial banker if there are any ways I can take advantage of the low rates. They said they could lower the rate for them by 1% in exchange for $1k and having the rate hold lowered to 7 years with the rate adjusting annually after that.

I would be saving $2k/year on my monthly payments. I would basically have to count on the interest amount increase to be less than $13k for the last 3-5 years on my loans. It seems like a no brainer to me. Do people see interest rates increasing drastically 7 years from now?

Also, why would the lender be willing to do this if it is such a killer deal for me? They would be making less money per month on me. I feel like I am missing something big here.

[Jonathan R McLaughlin]

@Jerry Poon you are trading 3-5 years of interest rate lock/security for the cash saved for the lower rate. Could be a good bet, but you do increase your risk profile. Alternatively, the bank gets a chance at a higher refi earlier and more than once. Why would they? Since they control spread over the rate, they have a little more flexibility to gain back profit on refi's. They also might be trying to match the general market and keep your loan with them? And in a period of low interest rates, probably good to move more loans to reset earlier so you don't get trapped holding too much low interest paper....