A CMBS loan buydown is a process where a borrower pays upfront to purchase points on their mortgage in order to lower its interest rate. For example, a lender may allow you to pay 1% of the entire loan amount upfront to reduce your interest rate by 0.5%. This process is also known as loan assumption, where a property owner sells an asset, but in a manner that sees the buyer bound by the original loan documentation, allowing them to pick up where the seller left off. The assumability of a loan negates the need for a prepayment penalty, providing more exit flexibility for borrowers and less prepayment risk for bondholders.

A CMBS loan buydown involves paying upfront to purchase points on your mortgage in order to lower its interest rate. For example, a lender may allow you to pay 1% of the entire loan amount upfront to reduce your interest rate by 0.5%.

When a conduit lender issues a CMBS loan, they will pool it in with a variety of other loans in order to create a commercial mortgage-backed security (CMBS). These CMBS loans are similar to bonds, in the sense that they are traded on the open market.

Most conduit lenders have between three and eight securitizations per year, but this can vary greatly based on the size of the lender and the size of the loans they issue.

Lower-risk tranches will be paid first in the case of a loan default, while higher-risk tranches are paid later.

CMBS loan buydowns can be a great way to reduce the interest rate of your loan. By paying upfront, you can purchase points on your mortgage in order to lower its interest rate. For example, a lender may allow you to pay 1% of the entire loan amount upfront to reduce your interest rate by 0.5%.

This can be a great way to save money on your loan, as CMBS loan rates are already incredibly competitive and can often beat out comparable bank loan rates for similar borrowers. Plus, CMBS loans are non-recourse, meaning that even if a borrower defaults on their loan, the lender can’t go after their personal property in order to repay the debt.

The risks associated with a CMBS loan buydown include the difficulty of getting out of the loan early due to prepayment penalties, the cost of defeasance if required, and the lack of secondary/supplemental financing allowed. Additionally, CMBS loans typically require borrowers to have reserves, including replacement reserves, and money set aside for insurance, taxes, and other essential purposes.

Source: cmbs.loans/blog/interest-rate-buydowns, cmbs.loans/blog/cmbs-loans-pros-and-cons, www.multifamily.loans/multifamily-cmbs-loans

CMBS loans typically require a borrower to have a net worth of at least 25% of the entire loan amount, and a liquidity of at least 5% of the loan amount. Buydowns involve paying upfront to purchase points on your mortgage in order to lower its interest rate. For example, a lender may allow you to pay 1% of the entire loan amount upfront to reduce your interest rate by 0.5%.