Coterminous vs. Non-Coterminous Loans: Understanding the Difference for Fannie Mae Multifamily Loans

Apr 21, 2024

Fannie Mae multifamily loans offer various financing options for real estate investors looking to purchase or refinance multifamily properties. One key aspect to understand when considering these loans is the difference between coterminous and non-coterminous loans.

Coterminous Loans

Coterminous loans are loans in which the maturity date of the loan aligns with the maturity date of the interest rate. In simpler terms, the loan term and the interest rate term are the same, typically ranging from 5 to 30 years. This alignment provides borrowers with stability and predictability in their loan payments.

With coterminous loans, borrowers do not need to worry about interest rate fluctuations affecting their monthly payments during the loan term. This can be advantageous in a rising interest rate environment, as borrowers are protected from potential payment increases.

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Benefits of Coterminous Loans:

  • Stable monthly payments
  • Predictable interest rate risk
  • Protection against rising interest rates

Non-Coterminous Loans

Non-coterminous loans, on the other hand, have a different maturity date for the loan term and the interest rate term. This means that the interest rate may reset or adjust at specific intervals during the loan term, leading to potential fluctuations in monthly payments.

While non-coterminous loans may offer initial lower interest rates compared to coterminous loans, borrowers should be aware of the risks associated with potential interest rate increases over time.

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Considerations for Non-Coterminous Loans:

  • Potential for lower initial interest rates
  • Risk of interest rate fluctuations
  • Possibility of increased monthly payments

When deciding between coterminous and non-coterminous loans for Fannie Mae multifamily financing, it is essential to consider your risk tolerance, financial goals, and market conditions. Working with a knowledgeable lender can help you navigate the options and choose the loan structure that aligns best with your investment strategy.

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Whether you opt for a coterminous or non-coterminous loan, understanding the differences between the two can empower you to make informed decisions regarding your multifamily property financing. By weighing the benefits and considerations of each loan type, you can select the option that best suits your investment objectives and financial circumstances.