What You Need To Know About Conduit Loans

When you’re a real estate investor, you need financing. However, traditional mortgages may not meet your needs due to their slow approval process. Instead, you may have to consider alternative lending options.

One option you may not be aware of is CMBS conduit loans, which have a lot to offer investors. If you’re in the market for out-of-the-box financing, here’s everything you need to know about CMBS loans.

What Is a Conduit Loan?

CMBS stands for commercial mortgage backed security, a type of loan that’s vastly different than traditional real estate financing. CMBS conduit loans involve putting commercial mortgages into a trusts, then issuing bonds, which in turn are sold to investors.

So what does that mean for borrowers? These loans are still fixed-rate with long-term installment plans, but they offer several benefits and drawbacks you’ll need to consider before you apply.

What Are the Benefits?

One of the major benefits is the low interest rates compared to other types of commercial real estate financing. Conduits loans are also quite flexible in how you can use the provided funds. You may also be able to find a CBMS loan for large amounts, typically in the millions, that traditional lenders aren’t willing to fund.

What Are the Drawbacks?

When you get a conduit loan, you typically can’t make prepayments unless it’s within the last few months of the term. Doing so earlier results in prepayment penalties unless you go through the defeasance process, which involves purchasing securities.

In addition to prepayment penalties, you also have to consider commitment fees and other financial obligations. You also need keep in mind that you can only use insurance payouts for repairs in specific circumstances.

Who Should Take Advantage of This Financing?

Conduit loans are a great option for real estate investors who want to be able to easily transfer the ownership of their properties, as this is much easier to do than with a traditional mortgage. This financing is also ideal for investors who may struggle to find lower interest rates due to poor credit or other complications.

What Can This Financing Be Used For?

You can use a CMBS loan to purchase many different types of property:

  • Retail properties
  • Warehouses
  • Industrial buildings
  • Office buildings
  • Hotels
  • Self-storage facilities
  • Multifamily properties

If a traditional mortgage doesn’t work for you, a conduit loan may be the solution. With this unique type of financing at your fingertips, you can take advantage of nearly any

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