Description

Understanding prepayment penalties in commercial real estate loans is crucial. Lenders implement prepayment penalties to ensure they make money on the loan. The penalty is calculated by multiplying the remaining loan balance by a predetermined percentage. Negotiating the prepayment penalty is possible, and it's important to aim for no penalty or a reduced penalty. Refinancing with the same bank may waive the prepayment penalty. Another option is a declining prepayment penalty, where the penalty decreases each year. Lockout prepayment penalties prevent borrowers from paying off the loan early.

Takeaways

1. Prepayment penalties are implemented by lenders to ensure they make money on the loan.
2. The penalty is calculated by multiplying the remaining loan balance by a predetermined percentage.
3. Negotiating the prepayment penalty is possible, aiming for no penalty or a reduced penalty.
4. Refinancing with the same bank may waive the prepayment penalty.
5. A declining prepayment penalty decreases each year, providing more flexibility.
6. Lockout prepayment penalties prevent borrowers from paying off the loan early.

Chapters

00:00 Deciphering Prepayment Penalties in Commercial Real Estate Loans

02:50 Negotiating Flexibility: The Power of Prepayment Penalties

03:58 Alternative Options: Refinancing and Declining Penalties in Real Estate

04:56 The Art of Negotiation: Knowledge and Control in Real Estate Investing

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