The election is over. The fiscal cliff is over. Are the low interest rates over? Probably not, but they’re not going to get any lower. If you’re thinking about refinancing your self-storage loan, there’s no better time than the present. Even if you have a prepayment penalty, it may make sense to pay it to take advantage of the lowest rates anyone can remember and ensure you benefit from today’s low rates.
So what should you consider when refinancing? First and foremost, give yourself enough time to search for the right program without jeopardizing a maturity date. This means you should start your process at least 120 days prior to your current payoff—if that’s the reason for the refi. Most refinances take a minimum of 45 to 60 days, with some life-company programs running 75 to 90 days. Appraisals alone can easily run four to six weeks.
Next, you need to decide if non-recourse is an important feature in your loan. If so, you’ll most likely need to concentrate your options on conduit or life companies.
Once you’ve narrowed down your preferences on recourse, other important decisions such as length of term, prepayment penalties and amortization will help determine your choice of lender and lending program. There are three main groups of lenders: banks and credit unions, life insurance companies, and Wall Street conduits. We’ll explore each in this article, understanding there will always be exceptions from the norm and areas of the country will vary; even regions within a state might vary due to factors such as demographics and lender competition.
With banks borrowing at next to zero, it has allowed them to compete with life companies on some fixed-rate terms up to 15 years. Non-recourse is also an option with some bank programs with a low enough loan-to-value (LTV), although this would be the exception versus the rule.
Banks will provide the most flexible structure and prepayment options but typically don’t want to fix a rate longer than five to seven years or amortize a loan longer than 20 to 25 years. In addition to bank-portfolio programs, higher-leveraged Small Business Administration (SBA) and United States Department of Agriculture (USDA) purchase or refinance programs are usually obtained through banks with LTVs up to 85 percent. However, SBA will not refinance an existing SBA loan.
Expect LTVs to be all over the board, from 60 percent up to 80 percent on non-SBA deals, and rates ranging from the high 3 percent on shorter three-year fixed rates to the low 4 percent to mid 5 percent range on five- to seven-year fixed rates. Ten-year or longer fixed rates are available with some banks, and rates will depend on leverage and other factors.