If the term on your commercial mortgage is expiring within the next year, now might be a good time to start thinking about renewal. While you may have been through the renewal process several times before, today’s fluctuating interest rate environment may have some impact on your timing, approach and next steps this time around. Getting ready for your renewal and discussing available options with your lender now can help you choose the best mortgage option for your financing, cashflow and future project needs.
When to Start the Commercial Mortgage Renewal Process
The earlier you begin the mortgage renewal process, the better. While a standard rule of thumb is to reach out to your lender four to six months in advance, there is value in getting started earlier – even a year ahead is a good place to start. Consider these factors:
The earlier you begin researching and assessing your mortgage options, the more time you have to find the optimal solution for you
Because interest rates have changed significantly over the last year, you may be facing a different scenario than you’re accustomed to (a year ago, 10-year rates were at 2%. Today, this same term is between 4.5% and 4.8%). As such, you’ll want to time to figure out how to accommodate potentially higher mortgage payments
If you’re thinking about renewing with a new lender, getting your mortgage approved may take longer, with more paperwork required
If you’re looking to refinance, the process is more involved with additional steps. Today, insured mortgages in particular come with extended lead times through CMHC
Should you have plans for new/ future projects, having an early conversation with your lender may help ensure you can cover all your financing requirements efficiently
At MCAP, we reach out to our clients at least six months prior to their mortgage renewal date to let them know that we are here to assist with a commercial mortgage renewal offer or to provide refinance options should they wish to access equity.
Renew or Refinance: Which Option Should You Choose for Your Commercial Mortgage?
With a commercial mortgage renewal, the loan balance and amortization do not increase. With a commercial mortgage refinance, on the other hand, the borrower can request an entirely new mortgage term, amortization, loan amount or interest rate.
Borrowers may opt to refinance their commercial mortgage to increase their loan balance and access the funds for other purposes, such as renovations or to invest in other properties. Another reason to refinance a commercial mortgage is to extend the amortization of the loan and reduce the monthly payments to better fit their finances. This is becoming increasingly common in today’s interest rate environment.
It’s important to remember that refinancing a commercial mortgage will come with additional costs like legal fees, and should you refinance outside your renewal window, you may encounter a prepayment fee for breaking your original mortgage agreement in the event you choose to refinance early. In the event you choose to refinance late (past the expiry date of the original term), extension fees and/or a higher interim interest rate may apply.
Commercial Mortgage Renewal Checklist
As you prepare to renew your commercial mortgage, you’ll want to gather your documents to help make sure the process goes smoothly. Here’s a list of the documents typically required for a commercial mortgage renewal:
Financial statements for the most recent three years
Current operating statements, noting actual income and expenses for the property
Personal Net Worth Statement(s) (if required)
Current credit report
Completed Environmental Site Assessment (ESA) questionnaire
Anti-Money Laundering (AML) check
Completed Identity Verification Form (IVF)
Organizational chart, detailing company structure, key individuals, and reporting responsibilities
See our downloadable commercial mortgage checklist for a full and detailed list of documents to prepare.
Once you have all your documents, you should be set to go. MCAP clients can easily submit their documents by email to save time and paper. Please reach out to your originator, who will be happy to get you started on the process.
Whatever your current mortgage situation, the MCAP Commercial Mortgages Team would be happy to discuss both your existing loans and future requirements. The Team can help you get started on a renewal, discuss refinance options and review financing solutions that best suit your specific needs. Whether you’re an existing MCAP client or thinking of moving your mortgage to us, we encourage you to speak with our team who can guide you, provide indicative terms and help you plan ahead.
If you’re exploring commercial mortgage options, contact our Commercial Mortgages Team to learn about MCAP’s solutions for your business.