How Are Non-Recourse Loan Interest Rates Determined?
By Terry Painter/Mortgage Banker
By the time you apply for a non-recourse loan, the lender already knows what return they want or need to have on their money. The total return is based on a combination of interest rate and points. For example: If the interest rate is 6.00% and the points charged are 2.00%, annually the lender will be earning a yield of 8.00%. Private money lenders usually lend from a fund, or a group of individual investors. Some lend from a warehouse line of credit. In this case they need to earn a margin of profit over their cost of funds.
Most Commercial Banks that do non-recourse loans borrower money wholesale and lend it retail. They have a cost of funds that changes daily and they add a margin or spread to this. Banks that have plenty of their own money to lend can be the most competitive since they are not borrowing the funds.
I. Non-Recourse Permanent Loan Interest Rates
Almost all Non-Recourse Loan Interest Rates for permanent commercial loans are based on the index of a US Treasury Yields plus what is called a spread above them. Spreads run from 2.00% to 3.50%. The fixed rate period of the loan will be tied to the corresponding treasury yield. This means that a 5 year fixed mortgage will be tied to the 5 year treasury yield and a 30 year fixed rate will be tied to the 30 year fixed rate. For example: To Calculate the interest rate for a CMBS Loan, the 10 year treasury yield is 3.00% and the spread is 2.25% for an interest rate of 5.25%.
For multifamily properties, Life Companies, Fannie Mae, Freddie Mac, and FHA, usually have the lowest interest rates. For all other commercial investment properties like: office, retail, self-storage and industrial, Life Companies and CMBS usually have the lowest rates.
II. Non-Recourse Bridge Loan, and Private Fund Loan Interest Rates
Most Non-Recourse Bridge loans and private money loans use the 30 day libor rate plus a margin. These loans are almost always interest only. Spreads range from 2.75% to 7.00%. For example: to calculate the interest rate for a bridge loan where the 30 day libor rate is 2.50% and the spread is 4.00%, the rate would be 6.50%
Bridge loans and private money loans that tie into the 30 day libor rate will adjust monthly. Loans that tie into the 90 day libor rate will adjust every 3 months.
III. Non-Recourse Construction Loan Interest Rates
Without question the very best non-recourse construction loan is the HUD 221 (D)4 for Multifamily. This loan goes up to 85% of cost and is a seamless construction loan roll over to perm. Once the property stabilizes (rented out), the loan becomes a 40 year fixed, fully amortized loan at one of the lowest interest available in America. Interest rates are based on the 10 year treasury yield plus a margin. A mortgage insurance premium is added to the rate as well. For more on the HUD 221(D)4 Multifamily loan:
Most other non-recourse construction lenders base their rates on the 30 - 90 day libor rate plus a margin of 3.00% to 6.50%. These rates will adjust every one to three months. For larger loans of $10,000,000 an above, life companies have the lowest non-recourse construction loan rates. These loans often only go to a maximum of 65% to 70% of cost. On the other end you have private money non-recourse construction loans that can go up to 75% or more, but have higher spreads and higher rates.
The good news is that non-recourse loan interest rates are more negotiable than conventional recourse loan rates. At Apartment Loan Store, our loan officers work for you are highly skilled at negotiating the lowest non-loan rate.
For almost everything from A - Z on Non-Recourse Loans read this article
By: Terry Painter/President Apartment Loan Store, and Business Loan Store