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Life Company Lending
Permanent Loans
Life insurance companies have long been a leading source of long-term fixed rate financing for commercial real estate. They have invested in commercial mortgages because of the relative safety, high yield and reliable return over a ten year or longer term that such mortgages offer. Because a life insurance company's cost of funds has traditionally been among the lowest of any financial institution, the interest rates offered by life insurance companies have also been among the lowest available in the marketplace.
Life insurance companies are “real estate lenders” - meaning that they base loan underwriting on the quality of the real estate versus the creditworthiness of the owner/borrower. Therefore, they can be relied upon to appropriately assess the components making up the real estate: location, site layout, design and quality of improvements, tenancy and market conditions. As a result, life company lenders are able to customize loan structures either to fit the characteristics of the real estate, a property in lease-up or, sometimes more importantly, to fit the special needs or requirements of the owner/borrower.
| Because of the enduring nature of life insurance companies, they value long-term relationships with developers/investors and will offer preferred terms to those loyal customers. Such relationships prove invaluable when quick decisions or flexibility are required, or when economic times are more challenging. |
Mason-McDuffie Financial Corporation / INTERVEST is a servicing correspondent for most of our life company lenders. We service their loans locally and provide direct and fast service for our clients.
When economic conditions are difficult, other financing sources can be less than reliable, even suspending operations. Life insurance companies, however, have consistently proven to be solid and dependable sources of financing.
Advantages to Life Company Lending
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Using general account funds, our life insurance companies are uniquely able to offer longer-term fixed rate financing of up to 25 years.
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Life company lenders are able to lock the rate early and quickly during a loan process without the complications involved in acquiring a hedge.
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Interest is calculated on a “30/360” basis (versus “actual/360”), which is more accurate and fair, and saves about 8-10 basis points.
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By retaining loans in their portfolio, life company lenders will consider loan modifications or special requests (i.e. secondary financing) during the loan term.
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