Bank loan offer. How do I read this??

[Gary Myers]

Background: I own 7 properties, total 24 doors. Current loans are a jumble of 4.25-5%, 5-10 years balloons. Total outstanding mortgage balances: $498,000

I approached my lender (Local credit union) looking to refinance all the mortgages into one large one and create a line of credit with the equity in the properties so that I have money avail for "Cash" offers.

I'm looking for red flags, points for renegotiation, and any advice would be appreciated.

Here is the unofficial offer from my bank:

Loan 1:

Loan amount: up to $525,000 including all closing costs not to exceed 75% of appraised value

Rate: 4.35% fixed for 60 months, then to adjust to 350 b.p. over the 5 year UST Constant with a floor of 5.38% & no ceiling.

Term: 120 months

Amortization: 240 months

Origination: 0.5%

Loan 2:

Business Line of Credit: $100,000 not to exceed 75% of appraised value

Term 24 months

Rate 5.50% fixed

I'm not a financial guy, but I'm not really happy with: no ceiling, 0.5% origination, and 24 month term on the second loan.

The biggest problem is that they are going by purchase price. I was hoping to go by 75% of current appraised value and was hoping for a second loan closer to $225,000.

Can anyone comment on if this is a reasonable offer? 

Which points can I, and should I negotiate on?

Thank you for any help and advice

Gary Myers

Tampa FL

[Eddie T.]

@Gary Myers ok here is what I would do for each loan.

Blanket Loan

Try to get them to 80% LTV

But honestly they are giving you a great interest rate so you have to calculate how much actual cash in your hand is another 5% vs that interest rate going up to 4.9 etc

I do not like that after 5 years their is no ceiling for the rate reset

Are their any prepayment penalties?

Are they asking to review you financials yearly?

Find out exactly what happens say for example in year 3 you want to sell one of the properties out of the blanket loan how do you get that property released

LOC

How can you draw on the loc?

Are the payments interest only or interest and principal?

Some LOC have a yearly clean out period they require you to pay it down to zero every January for 30 days before you can access it.

24 months is too short if they will not go to 5 years I would say just do the entire thing as a cash out refi.

If it has been more then 6 months that you purchased these properties they should be using a new appraisal not purchase price.

Go to a second bank and bring them these terms and tell them to beat it. Unless you have a relationship with this banker, I pay a higher interest rate with my banker on portfolio loans then where I could get elsewhere but he gets things done for me and the bank is easy to work with and that is more valuable then saving a few pennies.