What are the advantages of fixed rate FLAT FEE Commercial Loan versus adjustable rate loans?

With a fixed-rate loan, your monthly payment of principal and interest never change for the life of your Commercial Loan. Your property taxes may go up and so might your insurance premium. Generally with a fixed-rate Commercial loan your payment will be very stable.

Fixed-rate loans are available in all sorts of sizes: 30-year, 25-year, 20-year, 15-year, 10-year, 5-year, 3 year and 12 & 6 month You might choose a fixed-rate commercial loan if you want to lock in a low rate. If you have an Adjustable Rate Commercial Mortgages Direct Loan (ARM) now, refinancing with a fixed-rate loan can give you more monthly payment stability for your commercial loan.

Adjustable Rate Mortgages -- ARMs, as we called them above -- come in even more varieties. Generally, ARMs determine what you must pay based on an outside index, perhaps the 6-month Certificate of Deposit (CD) rate, the one-year Treasury Security rate, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or other US Treasurys.

Most Apartment and Commercial Loan programs have a "cap" that protects you from your Commercial Loan monthly payment going up too much at once. There may be a cap on how much your interest rate can go up in one period -- say, no more than two percent per year, even if the underlying index goes up by more than two percent. You may have a "payment cap," that instead of capping the interest rate directly caps the amount your monthly payment can go up in one period. In addition, almost all Commercial Mortgages Direct Loan ARM programs have a "lifetime cap" -- your interest rate can never exceed that cap amount, no matter what.

ARMs often have their lowest, most attractive rates at the beginning of the loan, and can guarantee that rate for anywhere from a month to ten years. You may hear people talking about or read about what are called "3/1 ARMs" or "5/1 ARMs" or the like. That means that the introductory rate is set for three or five years, and then adjusts according to an index every year thereafter for the life of the loan. Loans like this are often best for people who anticipate selling -- and therefore selling the Commercial Real Estate Property to be mortgaged -- within three or five years, depending on how long the lower rate will be in effect.

You might choose an ARM to take advantage of a lower introductory rate and count on either selling, refinancing again or simply absorbing the higher rate after the introductory rate goes up. With ARMs, you do risk your rate going up, but you also take advantage when rates go down by pocketing more money each month that would otherwise have gone toward your Commercial Real Estate Mortgage payment.