There has been much speculation on where rates are headed in 2017. The Federal Reserve raised its benchmark interest rate a quarter point last December, just as it did in December 2015. The increase indicates that they feel the markets are stable, and while the Fed technically does not control mortgage rates, their decisions do influence the cost of capital.
If you’re thinking of or in the process of purchasing or refinancing a small multifamily property, you may be wondering if there are ways to ensure your loan goes smoothly amid potential rising rates. Here are some tips to protect, and even grow, your real estate portfolio in a changing environment:
Prepare for Potential Lender Pullback
For several years now, the multifamily market has been on a roll, and traditional lending sources have been readily lending to capitalize on the steady growth. However, a rising rate environment means some may now have other yield opportunities to explore, making them less bullish when it comes to multifamily lending. As a borrower, you may see higher costs and with more restrictions that make it harder to close the deal.
It’s not all bad news, though. One reason Freddie Mac Multifamily exists to help counterbalance the reduction in available capital by providing financing in all phases of the economic cycle. Small multifamily properties, in particular, are a focus because they are a major source of affordable workforce housing for renters. As a result, Freddie Mac Multifamily works with a network of approved lenders across the country to source small loans through a streamlined process.
Know What’s Behind Your Loan’s Interest Rate
When the Federal Reserve decides to raise or lower rates, many lenders tend to follow suit and adjust their rates accordingly. However, not all financing is based on the Fed’s rates. Freddie Mac Multifamily’s approach tracks a variety of factors across both the Small balance market and the capital markets to determine its rates. For borrowers, this means consistently competitive pricing.
Hold The Rate (Coupon) You’re Quoted
Many borrowers incorrectly assume that the rate used in their initial quote will be the rate used to close the loan. This may not always be the case, since lenders can change the rates as they see fit, at any point in the loan process.
Once placed under application (which includes the posting of a good faith deposit), Freddie Mac Multifamily will quote a coupon — a simple, single number so that the Borrower does not need to track a spread or index. We will then hold the coupon for 60-75 days as the loan continues through the approval process. This gives borrowers peace of mind against the negative effects of rate changes. Freddie Mac Multifamily also offers options to purchase an extension that holds your coupon for up to 120 days.
For more information on Freddie Mac Multifamily Small Balance Loans, click here.