Apex Commercial Capital is committed to offering borrowers a variety of high-quality loan programs, which is why we’ve added a new variable-rate program for clients looking to finance investment properties. As our lowest priced product, these mortgages will benefit many borrowers. But when is a variable-rate mortgage right for an investment property owner?

Choosing between a fixed-rate and variable-rate mortgage is one of the most important decisions a commercial mortgage borrower must make. While fixed-rate loans offer stability and predictability, variable-rate mortgages (VRMs) can provide financial flexibility and cost savings in the right circumstances. Understanding when a VRM is the right choice can help commercial borrowers maximize their financing strategy.

What is a Variable Rate Mortgage?

A variable-rate mortgage features an interest rate that fluctuates over time based on a benchmark rate, such as the prime rate or the Secured Overnight Financing Rate (SOFR). This means that monthly payments can change, potentially leading to lower costs when rates decline but higher costs if rates rise.

When a Variable Rate Mortgage is Beneficial

• When Interest Rates are Expected to Decline
  If market trends suggest that interest rates will drop, a VRM allows borrowers to take advantage of lower rates without refinancing. This can result in significant interest savings over the loan term compared to locking in a higher fixed rate.
• Short-Term Loan Horizon
  If a borrower plans to hold the property or loan for a short period—such as for a value-add project or a bridge loan—then a VRM may be advantageous. In the short term, borrowers can benefit from lower initial rates without worrying about long-term fluctuations.
• Higher Risk Tolerance and Cash Flow Flexibility
  Businesses with strong cash flow and the ability to absorb potential payment fluctuations can take on the risk of a VRM. Companies with a stable financial cushion may benefit from the lower initial rates without significant concern over potential increases.
• Opportunities for Refinancing
  Borrowers who anticipate refinancing or selling the property in the near future may find a VRM attractive. Since many commercial loans have prepayment penalties, a VRM can offer better flexibility for early payoff compared to fixed-rate loans with steep breakage costs.

Final Thoughts

A variable-rate mortgage is not for every commercial borrower, but for those who understand the risks and align them with their financial strategy, it can be a powerful tool. Consulting with a commercial mortgage expert can help borrowers assess whether a VRM fits their investment and business objectives.

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