Financing Terms help - real estate development
I have recently become involved in a real estate development deal for my company. Can someone please help clarify my question below about the rate?
The bank has approved the loan and the rates are as follows:
- Construction & Stabilization Period: Monthly payments of interest only up to 2 years
- Permanent Financing: 60 months, monthly payments of Principal & Interest based on amortization not to exceed 25 years with a balloon payment at maturity.
-Construction & Stabilization Period: One month LIBOR Rate Reset Monthly rounded to the nearest 1/16 percent plus 265 basis points. As of today's rate, the rate would be 2.84%, such rate to be adjusted by Bank prior to initial funding as market conditions change.
- Permanent Financing: Bank Cost of Funds + 250 basis points
- Interest to be calculated on a 360 day year
PREPAYMENT INDEMNITY: None
ORIGINATION FEE: 40 basis points
1. Does the Permanent Financing mean interest rate 2.84% + 250 basis points (2.5%) = 2.84 + 2.50 = 5.34% interest rate for permanent financing??? This is my understanding. Please confirm if I am correct or wrong.
2. This is from the Commitment Letter for the construction loan. After construction finishes, does this mean there will be new terms for the Permanent Loan, and we will negotiate new rates for Permanent Financing???
If what I assume above is correct, we will be shopping for other banks for the Permanent Loan after construction is finished since 5.34% interest rate is high.
Please help. Thanks.