You just got the memo that your commercial mortgage is up for renewal, and that can seem like an annoying thing to have to tackle in your busy schedule of managing properties, tenants, and your day-to-day operations. But renewal is also the perfect time to reassess how your mortgage is actually working for you and your business needs, so it isn’t something you want to quickly overlook.
But it can be made simpler when you choose the right brokerage, like CMS Real Estate, to help you. Renewal is a time to look at interest rates, market conditions, property performance, and long-term business goals, and planning early can give you a big leg up.
But you don’t have to do it alone. We’ve created a practical guide on preparing for your renewal so it doesn’t feel like another overwhelming task that needs your urgent attention.
What Is a Commercial Mortgage Renewal?
When your existing mortgage term ends (often after three to five years, depending on your financing agreement), there comes a time when you, as the borrower, need to arrange new or continuing financing for the remaining balance of your mortgage.
Depending on your specific situation, a renewal may require a fresh assessment of the property and the borrower’s financial position, meaning renewal terms, fees, and approval requirements vary by lender and mortgage agreement.
When Should You Start Preparing for Your Commercial Mortgage Renewal?
So, if you’ve been given notice that your renewal is upcoming, then you may be wondering when exactly you should begin looking into the process. With commercial properties that oftentimes have a lot of moving parts, it’s always best to get a head start wherever you can, and for renewals, that can look like planning four to six months in advance of the mortgage maturity date, or even earlier if you have complex transactions to consider.
When updated valuations, financial documents, or lender approvals are required, a commercial renewal is likely to take quite a bit longer than what you might have experienced on the residential side, so planning ahead for that is always a smart move.
That’s where a mortgage broker can really help. We can work with you to assess your current situation, gather your documents, compare lenders, negotiate terms, and address potential financing challenges ahead of time to help make the renewal process as smooth and straightforward as possible.
As we’ve established, when your current term ends, there can be quite a few factors to look at and consider. So, let’s break it down into simpler steps.
Your Commercial Mortgage Renewal Checklist
Step 1: Review Your Current Mortgage Terms
- Confirm your mortgage maturity date, outstanding balance, current interest rate, and remaining amortization.
- Review any renewal provisions, penalties, fees, or other conditions.
- Consider whether the existing financing structure still suits your property and financial goals.
Step 2: Gather Your Financial Documents
- Prepare updated financial statements and other documentation requested by the lender.
- Gather property income and expense statements, rent rolls, lease agreements, and occupancy information where applicable.
- Consider whether updated property valuations or appraisals may be required.
Remember, having the necessary documentation ready can help streamline the renewal process.
Step 3: Assess Your Property and Future Financing Needs
- Review the property’s financial performance, cash flow, occupancy, and operating expenses.
- Consider upcoming renovations, capital improvements, tenant changes, or expansion plans.
- Determine whether the current mortgage structure still supports your longer-term investment or business objectives.
Step 4: Compare Renewal and Refinancing Options
While renewal generally involves arranging a new term for your existing mortgage balance, refinancing can involve changing the loan amount or financing structure.
When you’re renewing your mortgage, it’s a perfect time to assess renewal rates and refinancing options. Refinancing may allow you to change your financing structure, access equity, or consolidate debt, subject to lender approval, of course, but can also involve additional costs, documentation, and underwriting. Renewal provides the perfect time to assess these options and compare them with your long-term financial goals.
Step 5: Shop Around and Negotiate Your Terms
Accepting the first renewal offer isn’t always the best approach, as there can be several different avenues to explore to create the best solution for your specific property. When working with a mortgage broker, you can shop around for the best personalized solutions, including comparing:
- Interest rates
- Amortization options
- Repayment flexibility
- Fees and other loan conditions
Whether working alone, with a bank, or with a broker, one thing to remember is to always review and finalize your financing arrangements before the mortgage maturity date.
What If You Run Into Challenges During Renewal?
Commercial mortgages can be complicated, and there can always be something unexpected that arises during the mortgage process. That’s why working with professionals can help keep things streamlined in the long run.
While you may be tempted to go in new directions with your mortgage at the time of renewal, there are also some considerations to keep in mind:
- If you have to agree to higher interest rates, that could increase payments and put pressure on cash flow in the coming years.
- Switching lenders may require additional underwriting, appraisals, legal documentation, and fees, which can extend the renewal process.
- Changes in property value, rental income, or occupancy rates can affect your financing options and the terms lenders may offer.
Make Your Next Commercial Mortgage Renewal Count With CMS Real Estate
A mortgage renewal can appear stressful, but it’s also a great opportunity to reassess financing and how your property is performing, so don’t just think of it as signing another agreement.
At CMS Real Estate, we understand that every commercial property comes with its own financing needs. Whether you’re looking to renew your existing mortgage, explore refinancing options, or compare what other lenders have to offer, our team can help you navigate the process and find a solution that works for your property and long-term goals.