Loan Assumption
The transfer of an existing loan to a new borrower in connection with a property sale. CMBS and agency loans are typically assumable, allowing buyers to take over favorable loan terms. Assumption involves lender approval, fees (typically 1% of loan balance), and meeting underwriting requirements. It can provide significant value when existing rates are below market.
Related Terms
CMBS (Commercial Mortgage-Backed Securities)
Loans originated by conduit lenders that are pooled together and sold to investors as bonds. CMBS loans offer higher leverage (up to 75% LTV) with competitive rates across all property types. They feature standardized terms, non-recourse execution, and are assumable. However, they have significant prepayment restrictions (defeasance or yield maintenance) and less flexibility than portfolio loans.
Agency Lenders (Fannie Mae / Freddie Mac)
Government-sponsored enterprises that provide liquidity to the multifamily housing market. Fannie Mae and Freddie Mac offer highly competitive rates with leverage up to 80% LTV for qualifying apartment properties. They provide interest-only options, streamlined underwriting, and are the primary source of permanent financing for stabilized multifamily assets nationwide.
Defeasance
A prepayment method where the borrower purchases a portfolio of government securities that generates cash flows matching the remaining loan payments. The securities are assigned to the lender, and the property is released from the mortgage. Defeasance is required for most CMBS loans and can be expensive, especially when interest rates rise.
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