Skilled nursing facility owners and operators continue to have access to a positive interest rate environment for HUD loans, with interest rates remaining on a downward path in November at around 5.40 percent, according to Erik Howard, president and COO of Capital Funding Bancorp, Inc. and president, CFG Bank.

Speaking to Mark Parkinson, former head of the American Health Care Association/National Center for Assisted Living, on Parkinson’s web platform, Park Place Live (www.ParkPlaceLive.com), Howard said rates are well below where they were at the start of the year and steady with October.

“At the beginning of the year we were locking rates at around 6 percent in what we refer to as the note rate, which is before the mortgage insurance premium. Today, we are probably at around 5.40 percent on that same note rate,” he told Parkinson.

One of the factors influencing the HUD rates is the correlation between the movement in that 10-year [U.S. Treasury Note] and HUD rates.

“When you look at the beginning of the year 10-year was probably around 4.70 percent as it peaked in February and is around 4.11 percent today. These lower rates on the 10-year translate into lower HUD rates,” Howard said.

Did You Miss the Boat?

Parkinson said one of the fears of borrowers is that they will miss out on significant declines in interest rates when taking out a loan, like for instance, a skilled nursing entity that signed on a HUD loan earlier in the year at a 6 percent rate versus today’s lower rates.

In response, Howard said there are many options for HUD borrowers when it comes to taking advantage of refinancing opportunities.

“There is tremendous flexibility in how we price these loans today,” he said. “There is an ability to change the pre-payment penalties and the structure of the loans to give borrowers better flexibility over a 10-year period. Whatever fits the borrower’s investment horizon.”

So, in the case of recent history and the current trend, if rates decline over a one- to three-year period, a borrower can modify loans, effectively making a “parallel shift in their rates and benefit from the savings,” Howard said.

“One way that we look at it is that most of these loan holders are for three to five to seven years or longer and if rates stay the same you have a great 5.40 percent loan today. If rates go down over that period you have an ability to lower your rate and still have that same great HUD loan in place, and if rates go up, then borrowers look like geniuses,” he said.

Watch the complete Howard interview on Park Place at www.parkplacelive.com. Park Place is hosted on the myzPAX platform. You can access us on mobile via the myzPAX mobile app available on the App Store. 

Questions or comments? Contact Patrick Connole at pconnole@parkplacelive.com.