The methodology for commercial loan underwriting is different than for residential. The building will have a net operating income, and that netoperating income must service the principal and interest expense of the desired loan at least 1.2X. By lowering the rate, you then lower the principal and interest, which will allow for a greater loan amount.
Michael Haltman, President
Commercial Capital Alliance/Exeter Commercial LLC
131 Jericho Turnpike, Suite 202
Jericho, New York 11753
Another time it makes sense is from an underwriting perspective - most bank underwriters will enter a "maximum qualification rate" into the loan file. This means that the borrower cannot have a final rate higher than this rate. In certain circumstances, it may be necessary to "buy down" the rate to get below the max. qual rate.