Fixed and Variable-Rate Loans and the HUD 232 Program

Fortunately for borrowers, HUD 232 and HUD 232/223(f) loans both have fixed interest rates. This can be very beneficial, since, unlike variable-rate loans, borrowers do not have to worry about interest rates rising. Because of this, they can make much more accurate financial projections.

For HUD 232 construction loans, fixed interest rates are locked before construction begins, however, the construction period of the loan is interest-only.

Which is Better?

Although it is hard to say which type of loan is better, here are some benefits of each type:

Fixed-rate Loans: Because the interest rate doesn’t change, payments are predictable. This makes it much easier for borrowers to create a realistic budget. This is especially true for large multifamily projects, like those financed through the HUD 232 program.

Variable-rate Loans: Data from some studies on interest rates and mortgages show that borrowers pay less interest overall throughout the life of a variable-rate loan. At the same time, these loans mainly benefit borrowers in a higher interest environment in which rates are trending down.

HUD 223(a)(7) Refinancing Can help borrowers reduce interest rates

While interest rates are currently on the rise, if interest rates were to fall, borrowers could benefit from refinancing their HUD 232 loan with a HUD 232/223(a)(7) refinance loan. The HUD 232/223(a)(7) refinance is one of the easiest HUD multifamily loans to apply for, as it only requires one third-party report, a project capital needs assessment (PCNA). In addition, borrowers can roll the the costs of any prepayment penalties into the loan itself. Like all other HUD multifamily loans, HUD 232/223(a)(7) refinance loans are non-recourse, fixed-rate, and fully assumable.