Thursday, August 8, 2013

What Is Defeasance? How Does It Affect My Commercial Real Estate Loan? via Phil Jemmett

The rules that govern home loans are not the same as the rules that govern commercial real estate loans. One of the major differences is that there is usually no penalty for early repayment of a home loan, whereas investors in commercial real estate can face stiff penalties for early repayment. You might be thinking, "Why woudn't my lender want to receive early payment on my commercial loan?" Early loan repayment is penalized when your loan has been securitized, meaning that your loan has been bundled with other loans and sold to bondholders as a debt security (in this case, a commercial mortgage-backed security [CMBS]). CMBS bondholders are expecting a certain rate of return on their security, and prepayment of your commercial loan will affect that rate of return.

Read more...What Is Defeasance? How Does It Affect My Commercial Real Estate Loan? | Phil Jemmett

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