Mortgage Applications

Since we did not win the lottery, and our ARM is going up, and we are only a couple years away from the end of our first ten year loan term, my TIC is once again looking into refinancing options. Our first preference is of course to refinance with fractional loans. Fractional loans have several advantages over group loans. First, everyone in the group is not on a single note, so you don't need to worry about whether your building partners are paying their mortgages or not. If they don't or can't it is between them and the bank. Second, it makes the monthly administration of the loan less complex. With a group loan, everyone puts their share of the mortgage into the group account every month, and then someone must write one big check to the bank. With a fractional loan you all write your own checks and they get put against your individual loans. Third, it makes condo conversion less of an issue. Legally a TIC building is still viewed as a single property, but fractional loans eliminate the economic entanglements of the partners. So you can run it more or less like a condominium - the only economic obligation each parther has to another is regarding the maintenance and upkeep of the common areas.

In addition, fractional loans allow partners to choose different financing options. One partner can opt for an interest only loan, while another might choose amortization. And big plus, if anyone wants or needs to sell, that same bank will offer a fractional loan to a qualified buyer, allowing you to cash out your equity.

Making the rounds of banks and brokers this month we are finding that rates and terms for fractional loans are improving. For our building, which has six units and a commercial unit, it looks like the best deal is being offered by Sterling Bank. (A senior loan officer there took the trouble to champion our case before a special committee.) A strong point in our favor - we have been a TIC since 2000 and have never missed a loan payment. The benefit of going with a small, local bank that knows the San Francisco market is they will take that kind of history into consideration, instead of simply looking at the size of our building and putting it into a commercial or high risk category. So we are all busy completing our applications this week, in the hopes that we will each be able to secure a reasonable fixed rate for at least the next five years or so.