Extend commercial mortgage term to take stress off? Good idea or not?

Hi all,
Looking for advice on what the negative implications might be if we ask our bank to extend the term of our commercial mortgage (they have refused verbally a switch mortgage from commercial mortgage rate 5% to private dwelling mortgage with rate 2.6% already), in order to take some pressure off myself and husband.

Thinking of requesting extension from 6 years left to 12/15 years.

Up to now we have AAA rating with ICB ( not that this means anything to our bank of 30 years!). I expect that our rating with ICB will reduce greatly but thinking .... so what..it hasn't helped us to refinance anyway, so if our rating suffers, what impact will it really have on us into the future..

Would welcome any advice, observations..

Hello,

Can you please provide a little more detail?

For example, can you please tell us what type of property it is, if its in a city, large town, or rural area, if its rented out and if the net rent covers the debt, what the debt is and how that compares with the value of the property, if you are with a Bank, or a non - Bank lender, or a Fund that may have purchased your loan from a Bank, have there been any part difficulties with meeting the terms of the original deal etc.

Circumstances often dictate what is or is not possible.

Commercial mortgage is on agri land near rural town. It was purchased to build home on (Planning received 5 years after commercial loan taken out. House/home now built on land - but unable to get PDH mortgage approval from banks at 2.6% rate to replace commercial rate of 5%. I have also split folio to separate folio for PDH from folio number of agriland number.
Agri land being used as part time hobby beef farming.

Original bank still involved.

Difficult for us every month to service this so thus why we sought change from commercial rate to PDH rate..we are customers of this bank for past 30 years...they are non supportive of switch, as well as other banks..(all quoting the same reason
' purpose of loan' not suitable.

Debt as % of asset value (land+PDH) = circa 15%

Or
Debt as % of asset value (PDH) = 36%

Absolutely no past issues with servicing mortgage (actually we are slightly ahead of payment schedule) but I had very serious health issue 2 years ago and concerned now that too much pressure on me and especially hubby now..
Thus now why we are thinking of asking our bank to accommodate term change from 7 yes to 12/15 years to alleviate pressure on us.

We have come to conclusion now that our bank doesn't really care but that our only option left to us is to seek a term change...otherwise we could end up either very sick again and subsequently in default/arrears..which we do not want..we are trying to be proactive while caring for our health but our banks have surprised us and not in a nice way..

I think that if we get a term extension, I expect that this reflects badly on us credit rating wise, but our current AAA rating has been no help to us at the moment.
We don't use loans for cars etc as we save when we can to buy such household expenditure.
The only item that I think we might adversely affect in the future might be if we need to apply for loan(s) for education/university costs, that is where I feel we maybe vulnerable with, if we request a term extension now. Kids due to college in 3 years and 7 years respectively..
Hope info above helps put context.

There's a lot of context to this case here:

If your current bank agrees to extend term on a normal commercial basis, it will have no impact on your credit rating.

No impact what so ever!! I thought it would be viewed as a form of default on our part and impacts directly on our credit rating... this is great to hear...thanks

Lookingforadvic said:

I thought it would be viewed as a form of default

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Not if they agree to it on normal commercial terms.

If you were already in arrears, and the bank agreed to it as a last option would be a different thing.

Slightly side issue - make sure that the bank are aware and have it on record that the loan is secured on your PDH. You are afforded the protection of CCMA although you've a commercial loan.

Is there CCMA protection, even if our home is now on a separate folio number from thecommercial loan which is on a charge on the agri land folio number.

Sorry, I might have misunderstood the change you made.
Is the loan secured only on the folio that does not include the house? As in your house now has no charge?

Yes house folio has no charge on it.

Ah, understood. I should have read it properly.

So you've c. 160 loan secured on agri land worth c. 600k, repayable over 7 years?
You've also got a mortgage free house worth c. 450k.

You can ask the bank to extend the term.
Separately, you could invesigate refinance the agri loan with another bank on a longer term.

You mentioned it was a hobby farm? There's big numbers involved for hobby farming! I say that because you'll need to present a business case to refinance. Is the farming actually making any money, or creating financial pressures and have you looked at options there? Like long term lease for example (tax free income?).

I can't see you being able to get a mortgage on PDH to repay the commercial loan.

Question: is it possible that our bank may decide not to agree to an extension on term on a normal commercial basis? Could they refuse? What would banks normally do in this scenario? I've come to mistrust our bank given their lack of support hitherto fore...

Yes, they could refuse. But they won't if it makes sense - they'll earn interest on the loan for longer.
Don't present it as something that you have to do, as it'd be seen as a stressed restructure.
You've a huge amount of security. If you can service the loan, why wouldn't they want to?

Thanks Red Onion...

I can't believe it!!!
Bank said NO to our request for commercial mortgage term extension, citing sufficient repayment capacity available.
Our previous request to them to switch from commercial mortgage to private home mortgage was deemed not likely to be duccesdful due to 'insufficent capacity to repay'..

So on the one hand our bank is saying we will not have enough repayment capacity - so no switching allowed at rate of 2.6% and on the other hand, they have just refused a term extension on commercial mortgage at 5% given on the basis that they feel we have enough repayment capacity on the current commercial mortgage.
So we can't pay make the smaller repayments but we can make the bigger repayments..bit of an oxymoron!!

Something tells me they want to leave us with no other option but to sell our rental property to pay off our commercial loan with them. Our rental property is also with them on a tracker...

Is our only option now to sell rental property or would another bank look at new commercial mortgage application for longer term i.e over 15 years??
Would another bank not be interested in us just like our own bank???
Disgusted with my bank of 35 years..

Lookingforadvic said:

Thanks Red Onion...

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Lookingforadvic said:

Bank said NO to our request for commercial mortgage term extension

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Just go to another bank and ask for a refinance loan. Loads of lending currently available to the Agri sector.
You will need farm accounts, etc.

Do I understand this correctly?

You have a loan of €160k on a €600k field which you use as a hobby.

You are unable to service the loan with 6 years left.

Why not just sell the field and have €440k in the bank?

Or can you sell some of the field so that you own the remainder mortgage-free?

Brendan

You just mentioned a rental property . Maybe I misunderstood.

Is the house you built your home , or an investment property or do you own another property?

If so, what’s your full situation?

Total number of properties and loans

Lookingforadvic said:

I can't believe it!!!
Bank said NO to our request for commercial mortgage term extension, citing sufficient repayment capacity available.
Our previous request to them to switch from commercial mortgage to private home mortgage was deemed not likely to be duccesdful due to 'insufficent capacity to repay'..

Click to expand...

The ability to service personal / homeloan debt, is calculated differently to how a Bank calculates the ability to service commercial debt.

Homeloan providers need to consider such things as the Loan to Income ratio, and the percentage of your annual net personal income that can be used for monthly homeloan repayments.

I suggest that you ask your Bank to show you their calculations for both types of loans, as a starting point. I expect that you'll quickly discover that the commercial mortgage uses sustainable free cash from your commercial income, rather than the criteria I've referenced above for homeloans, when calculating your ability to repay.

You mentioned that you have split the title on the property, so the PDH is on a seperate Folio to the agriland.

Have you asked your Bank if they will advance a smaller Homeloan to you, to allow you to refinance part of the Commercial loan ?

Yes I have asked them for smaller home loan to finance commercial loan and they said no as the purpose an issue i.e using a home to canabolize commercial debt not allowed by the bank.
I've appealed their refusal to extend our commercial loan term before Covid as even before Covid 19, it would only take a family illness to expose our financial vulnerability...then along comes Covid 19..
Hubby's work drying up fast now and I'm casual subbing in secondary school..income gone!!!

Hoping now when I ask them they will give us a moratorium until appeal heard and covid over!! Not expecting their support though....