Many borrowers are surprised to learn that life companies are one of the most traditional sources of commercial mortgage financing in the business and have been for decades. Historically they focused on trophy type project ie with minimum loan amounts above $10,000,000 up to a billion or more. Due to the credit crisis many life insurance lenders have lowered their minimum loan amounts to a $1,000,000 and a few to as low as $500,000.
But what are the positives and negative of this type of financing? That’s what this article is about.
One of the best features of this type of financing is long term fixed rates. 5, 10, and 15 year fixed rates are available. As of this writing rates are competitive compared to conventional bank loans, ranging from 5% – to 6% (The longer the fixed period the higher the rate) often only 30 basis points higher than bank financing.
Also, because life companies are not banks they do not they do not have the same underwriting standards and typical limitations that banks do. This is not to suggest that they are not conservative, which they are. For example most of them are capped at 65% loan to value and 1.3 to 1.35 debt coverage ratios and only like general use properties such as retail, office or industrial. But still they can and will do things that banks cannot. Such as “cash out refinances”, which is currently nonexistent with banks in this market.
Another benefit includes that they do mostly investment properties loans which is still difficult to get done with most banks. The underwriting process is also simplified as life companies normally lend their own money and hold onto and service loans over their life, rather than pooling them and selling them on Wall Street. So for the borrower this means that they don’t have to perfectly fit into a restrictive “Box”. Continue Reading
