What are the Prepayment Penalties for the Freddie Mac SBL Program?
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Like most types of commercial and multifamily financing, Freddie Mac Optigo Small Balance Loans require borrowers to pay a penalty if they want to pay off their loan before the term is up. Fortunately for borrowers, the SBL program offers a variety of options when it comes to prepayment penalties.
Specifically, Freddie Mac offers yield maintenance and several step down prepayment penalty options. Yield maintenance compensates Freddie Mac (or, technically, the investors, once the loan has been securitized) for all the interest payments they’ll be missing out on as a result of the prepayment of the loan. In contrast, step down prepayment penalties are penalties based on a percentage of the remaining unpaid principal balance of a loan, and decrease, or “step down,” each year, as the loan reaches maturity. Below, we detail the exact prepayment penalties for the Freddie Mac SBL program:
Fixed Rate Loans:
- 5-Year
- Option 1: 54321
- Option 2: 321(3)
- Option 3: (Yield Maintenance or 1%)
- Option 4: 310(3)
- 7-Year
- Option 1: 5544321
- Option 2: 3(2)2(2)1(3)
- Option 3: (Yield Maintenance or 1%)
- Option 4: N/A
- 10-Year
- Option 1: 5544332211
- Option 2: 3(3)2(3)1(4)
- Option 3: (Yield Maintenance or 1%)
- Option 4: N/A
Hybrid ARM Loans:
- 5 + 15 Year
- Option 1: 54321, 1%
- Option 2: 321(3), 1%
- Option 3: (Yield Maintenance or 1%) + 1%, 1%
- Option 4: 310(3), 0%
- 7 + 13 Year
- Option 1: 5544321, 1%
- Option 2: 3(2)2(2)1(3), 1%
- Option 3:(Yield Maintenance or 1%) + 1%, 1%
- Option 4: N/A
- 10 + 10 Year
- Option 1: 5544332211, 1%
- Option 2: 3(3)2(3)1(4), 1%
- Option 3: (Yield Maintenance or 1%) + 1%, 1%
- Option 4: N/A
While this information provides a basic look at Freddie Mac SBL prepayment guidelines, it’s important to understand that there are several additional rules that govern prepayment penalties. For instance, the “Option 4” for 5-year fixed and hybrid ARM loans is only available for loans financing properties in Top Markets. And, in addition, borrowers paying yield maintenance may need to pay additional fees, depending on the exact circumstances.
Related Questions
What are the eligibility requirements for the Freddie Mac SBL Program?
The eligibility requirements for the Freddie Mac SBL Program include:
- Property requirements
- Servicer & Seller Requirements
- Collateral
- Rigorous assessment
- B-piece purchase
- Loss sharing
- Repurchasing of delinquent SBLs
- Origination of at least $50 million per quarter
For more information, please refer to the Freddie Mac SBL Program Guidelines.
What are the advantages of the Freddie Mac SBL Program?
The advantages of the Freddie Mac SBL Program include:
- Flexible loan sizes, starting at just $750,000 and going up to $7.5 million
- Low interest rates, starting from just 4.51%
- High leverage, up to 80% LTV
- Generous DSCR minimums, as low as 1.20x
- 30-year amortizations, keeping payments low for borrowers
- Partial and full-term interest-only loans offered
- Cash-out refinancing offered for eligible borrowers
- Multiple fixed rate term options (with up to 10-year terms) and hybrid ARM options (with 20-year terms)
- Soft step-down prepayment penalties allowed
- 60-120 day rate commitments offered
- Loans are fully assumable with 1% fee and Freddie Mac approval
- Financing is non-recourse (with individual exceptions for certain loans)
What are the maximum loan amounts for the Freddie Mac SBL Program?
The maximum loan amount for the Freddie Mac SBL Program is $7.5 million. Source
What are the interest rates for the Freddie Mac SBL Program?
The Freddie Mac Small Balance Loan Program offers both fixed-rate and hybrid adjustable-rate mortgages. Fixed-rate Small Balance Loans are offered in 5, 7, and 10-year options, and hybrid ARM loans are offered as 20-year loans with 5, 7, or 10-year fixed-rate periods. Right now (July 2019), interest rates for Freddie Mac Small Balance Loans range from 4.08% to 5.16%. We have broken down rates by region and market size below:
Region Top Market Standard Market Small Market Very Small Market Northeast 4.08% 4.18% 4.38% 4.68% Midwest 4.18% 4.28% 4.48% 4.78% South 4.18% 4.28% 4.48% 4.78% West 4.38% 4.48% 4.68% 4.98% Hawaii 4.98% 5.08% 5.28% 5.58% In addition, pricing is further broken down by region, as Freddie Mac has divided the U.S. into 5 distinct regions for the purposes of SBL pricing. Interest-only periods can generally be added or subtracted for a 0.4% addition or subtraction per year. For instance, a borrower with a 5-year fixed-rate loan with a 5% interest rate could extend their I/O period to 2 years, but to do so, they would need to pay an elevated interest rate of 5.4%.
What are the prepayment penalties for the Freddie Mac SBL Program?
Prepayment Penalties for Freddie Mac Small Balance Loans
Like most types of commercial and multifamily financing, Freddie Mac Optigo Small Balance Loans require borrowers to pay a penalty if they want to pay off their loan before the term is up. Fortunately for borrowers, the SBL program offers a variety of options when it comes to prepayment penalties.
Specifically, Freddie Mac offers yield maintenance and several step down prepayment penalty options. Yield maintenance compensates Freddie Mac (or, technically, the investors, once the loan has been securitized) for all the interest payments they’ll be missing out on as a result of the prepayment of the loan. In contrast, step down prepayment penalties are penalties based on a percentage of the remaining unpaid principal balance of a loan, and decrease, or “step down,” each year, as the loan reaches maturity. Below, we detail the exact prepayment penalties for the Freddie Mac SBL program:
Fixed Rate Loans:
Term Option 1 Option 2 Option 3 Option 4 5-Year 54321 321(3) (Yield Maintenance or 1%) 310(3) 7-Year 5544321 3(2)2(2)1(3) (Yield Maintenance or 1%) N/A 10-Year 5544332211 3(3)2(3)1(4) (Yield Maintenance or 1%) N/A Hybrid ARM Loans:
Term Option 1 Option 2 Option 3 Option 4 5 + 15 Year 54321, 1% 321(3), 1% (Yield Maintenance or 1%) + 1%, 1% 310(3), 0% 7 + 13 Year 5544321, 1% 3(2)2(2)1(3), 1% (Yield Maintenance or 1%) + 1%, 1% N/A 10 + 10 Year 5544332211, 1% 3(3)2(3)1(4), 1% (Yield Maintenance or 1%) + 1%, 1% N/A While this information provides a basic look at Freddie Mac SBL prepayment guidelines, it’s important to understand that there are several additional rules that govern prepayment penalties. For instance, the “Option 4” for 5-year fixed and hybrid ARM loans is only available for loans financing properties in Top Markets. And, in addition, borrowers paying yield maintenance may need to pay additional fees, depending on the exact circumstances.