Browse Forums Home Finance 1 Apr 28, 2013 1:40 am So we're getting a commercial loan for building some warehouses. We've been offered e.g. 1.5% Line Fee + Reference interest rate with a discount. In this scenario we see a greater discount on the interest rate, but the Line Fee means we are paying fees on the full loan amount, even if we have not used them. The only advantage of a line fee seems to be long term, we are getting a greater discount off the interest rate - and is only beneficial if we keep the loan, which we are. 1. I believe bank uses line fees to deter develop and sell scenarios, and if we are developing them selling, at least making more money during construction of us by charging interest/line fee on full value of loan. Are there any other things we need to know about lines fees? Re: Commercial loan and line fees 2May 27, 2013 1:51 pm We have a commercial loan whereby the total interested charged is the sum of the BBSY ( Bank Bill Swap Rate) which is just above the cash rate ( currently 2.75 %) and a Line Fee . My understanding is that the Line Fee is basically the cost to the bank in providing the funds plus profit ( most of which is profit). A line fee of 1.6 % is great . Most banks at the moment are charging 2.5 %) so a loan would be BBSY rate of 2.84 % plus 2.5 % which is a total of 5.34 % . We are currently looking at signing up for a new term on our loan and I would interested in knowing the loan provider for this 1.6 % line fee. It would give me a reason to change banks. Re: Commercial loan and line fees 4May 27, 2013 11:00 pm 'The line fee compensates the bank for the capital held on the limit should the product not be fully drawn' . I would recommend talk to the bank about reducing the line fee and increasing your margin . Most work on a 60/40 ratio (margin/line fee) , just remember to lower your limit every copy on months (if redraw isn't need) to reduce your costs/charges.
Cheers Stig Re: Commercial loan and line fees 5May 27, 2013 11:08 pm Shahin A Why are you on a commercial loan rather than a resi loan? The Business Loan/ Commercial loan is due to the nature of the security being offered to secure the loan . If you have available equity in resident security , you could create two loans one Investment Property Loan and one Business Loan to lessen the line fee costs(and have a somewhat cheaper rate and much ongoing fees) cheers Stig Re: Commercial loan and line fees 6May 28, 2013 9:07 am "The Business Loan/ Commercial loan is due to the nature of the security being offered to secure the loan ." Does the above mean that if I was able to provide our own home as security for a loan whereby the Loan Value Ratio was less than 80% ( of the home), that we would be able to use the funds for commercial/investment nature or anything we see fit. Would most banks give us the residential home loan rate for this ? Re: Commercial loan and line fees 7May 28, 2013 9:45 am I don't think that you would get a blended loan for a warehouse as the loan is for a warehouse not residential. The collateral could be a mix of several items. Stig is correct. The line fee is simply a charge that helps recoup the capital that the bank must hold to cover the undrawn piece of the facility. From a capital perspective credit lines are off balance sheet assets which have a credit conversion factor applied to give it an equivalent on-balance sheet value to which capital would be charged. BTW unless the bank is operating under basel 3 and uses advanced models for their capital only cash collateral reduces the capital as real estate does not qualify for capital reductions. For the rates charged you should add it all up to see what it comes to and also don't forget that there may also be facility fees which are charged on a revolving basis, check the tenor of the loan. Then compare to other banks regarding whether the loan is commercial or residential, again Stig is on the money. It is tied to the main collateral which would be the commercial property. Other collateral is given to bring the LTV down. Be careful about what you use the money for, unless you can show that it has been used for income producing activity. The biggest challenge will be if you take out a loan and then run out of money - you'll have an incomplete security and lenders do not like this so you can get stuck.… 2 18896 Is it just a report written to give to the bank initially and it is based on what and how your payments are made up for, or is it a full service where they go out and… 2 5592 0 17313 |