Freddie Mac Fixed-Rate Loans

Freddie Mac fixed-rate loans are characterized by the fixed interest rate that remains unchanged for the course of the mortgage. Other than the fixed interest rate, the other terms are quite flexible.

Because these loans have a fixed interest rate, they’re also referred to as Freddie Mac conventional loans. This is one of the most common loan types offered by the Federal Home Loan Mortgage Corporation (Freddie Mac).

The flexibility of Freddie Mac fixed-rate mortgages allows these loans to be used for many different multifamily property types. Standard multifamily housing, senior housing, student housing, manufactured housing, and housing cooperatives are all eligible.

Only multifamily housing properties are eligible, although a certain amount of mixed-use space is permitted. Properties must have at least five units (standard for multifamily commercial loans).

For buildings that don’t meet the stricter eligibility requirements of some specialized programs, the conventional loan program is one of the more popular and better of the less stringent options that are available.

Freddie Mac fixed-rate mortgages can be used to purchase or refinance properties. When refinancing, the loans can be structured independently of whatever financing a property currently has.

These loans usually can’t be used for new construction or renovation, as these projects aren’t compatible with the longer-term fixed-rate financing that these loans offer.

The vast majority of Freddie Mac loans, including conventional fixed-rate Freddie Mac loans, come with a couple of standard features. These include:

• Non-Recourse: The individual principals listed on a loan generally aren’t held personally liable for nonpayment or default (except for typical bad boy carve-outs).
• Assumable: A prepayment penalty applies if the loan is repaid early, although the penalty is more complex than what some other loans have.

The prepayment penalty begins as a 2-year period of yield maintenance. If the loan is securitized during this time, the prepayment penalty shifts to defeasance. If the loan remains unsecuritized, the penalty continues to be yield maintenance. Some lenders offer a consistent yield maintenance penalty even if a loan is securitized, for an additional fee.

Freddie Mac fixed-rate loans allow for supplementary financing, whether through a standard or specialized supplemental loan program. Loans that provide funds for energy improvements, renovations, and major repairs can be secured after a Freddie Mac fixed-rate mortgage is in place.

Most Freddie Mac fixed-rate mortgages require regular tax payments to be placed into escrow. Insurance might also have to be regularly paid into escrow.

Freddie Mac fixed-rate mortgages allow for some mixed-use property. Generally, 40% of a property can be used for non-residential purposes, and the 40% limit applies to both space and rents.