Refinances are ALWAYS based upon appraised value and are usually limited to a maximum of 80% of appraised value, although some lenders are lowering the maximum to 75%.
The question to ask this broker is whether you will be allowed to refinance for more than your loan amount without any title seasoning. You can usually refinance your loan amount without title seasoning as long as that amount does not exceed 75% (or 80%) of the appraised value of the property. The title seasoning requirement comes up when your refinance lets you walk away from the settlement table with cash in your pocket.
Your strategy is to get two loans, one on the property itself and a second loan on other assets you own. The second loan is not tied up in your property, but ties up your bank CDs. Later you plan to consolidate the two loans into one to free up the bank CDs. I am just saying that your first loan does not have to be a commercial loan. Your strategy will also work if the first loan is a consumer residential loan.
True, the interest rate for the commercial loan seems better right now but you have no assurance that the rate will stay better. If the prime rate goes up next month, your commercial loan rate may also increase. You need to make sure that this commercial loan does not have a variable rate (probably linked to the prime rate).
I suspect the commercial loan does have a variable rate simply because the rate is just 6%. A 20 year fixed rate commercial loan will probably have a rate that is much higher and will also charge you a couple of points.
If you can refinance as soon as the repairs are completed, refinancing into a variable rate commercial loan may not be your cheapest financing approach. I am suggesting that a Fannie/Freddie conforming residential mortgage loan, is probably a better alternative for your refinance, even if you started with a commercial loan, as long as you are comfortable with the title seasoning requirement for the refinance loan.
Let’s assume that the cash out refinance will have a title seasoning requirement between six months to one year, regardless of whether your loan is a commercial loan or a consumer residential loan.
If this is the case, then why not just start with the consumer loan to begin with. If you are willing to pay the points associated with a commercial loan, I wonder if you get a fixed-rate consumer loan that also charges less than 6.5% if you pay the same number of points?
If the answer is yes, then the 30 year fixed rate consumer loan will have a lower debt debt service than any of the commercial loans you are discussing. With the 30-year fixed rate loan, you can use the increased cash flow to pay off your second loan on the CDs in a year or two and never need to refinance any of your loans.
If you tabulate all the loan costs, both for the original loan and for the loan refinance, and factor in the debt service for the loans, the consumer loan will usually have a lower cost of funds than the commercial loan.
If you get a 30-year fixed rate Fannie/Freddie conforming loan to begin with, your higher cash flow and the money you would spend on refinancing could be used to pay off the loan against your CDs and free up that asset. No refinancing required.
You have several options to explore. The cheapest option is not always the one with the lowest initial interest rate.