Hello Everyone,
I am curious if anybody has experience in terms of financing properties.
When taking out a loan for RE, is it an industry standard to always try and obtain a LIBOR rate rather than the Prime? In every forum, it seems that all these firms are using LIBOR as their index + a spread.
Can anyone give their input ? Thanks
This is because typically banks will only offer their lowest possible spread option on LIBOR pricing, because it more aligns with their cost of funds and gives a tiny bit of prepayment protection. Plus libor pricing can be swapped.
Prime can be swapped too, anything can be swapped.
True, but when you factor in liquidity, does it really matter that you can swap anything? LIBOR swap market is the most liquid.
I met with a bridge loan fund that ties their loans to Prime since pricing has got so competitive on the private debt side. Banks typically lend on LIBOR or fixed (CMBS)
Where I worked, we gave revolving lines of credit to clients who were'nt financially savvy. We used prime because it changed less frequently as to avoid confusing the clients who'd think we were ripping them off
Regional banks historically offer construction, bridge and lines tied to Prime. It's been like that for decades. LIBOR is a fairly new phenomenon.
LIBOR is definitely a more standard short-term, private sector credit benchmark. Prime is the rate charged to middle market corporate clients. Libor has more derivative pricing applications than does prime.
Thanks for the input.
So on a line of credit for over 1 million dollars(2 year term), it would be in my best interest to go with LIBOR so rates won't go as high the prime rate ?
We use EURIBOR with a floor of 0%.
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