How did housing and consumer loan lead to properties industry
Answers
First time commercial or multifamily borrowers also need to consider prepayment penalties, which are fees incurred for paying off a mortgage loan before it reaches maturation. These prepayment fees are not typical in the home mortgage world. If you take out a loan for your primary residence, and win the lottery the following year, you are going to typically be able to pay off the remaining balance of your home loan without incurring a fee. This is not the case with a commercial or multifamily loan. Why not?
Well, the lending institution has issued a loan collateralized by your commercial or multifamily asset expecting a set amount of interest revenue. If you are going to pay off your mortgage early, your lender is going to need to obtain that interest revenue through a fee to keep their balance sheet tidy or satisfy investors.
Remember, commercial Agency loans from Fannie Mae and Freddie Mac are often securitized (pooled and offered on the secondary markets) to retail and institutional investors relying on the interest income set forth in those loan terms. To recoup of that lost revenue due to an early loan payoff, loan terms usually include a declining prepayment penalty or yield maintenance fee structure.