Refinancing? Here’s what you need to know.

Go Big or Go Home: Commercial Edition

How Refinancing at a Higher Rate Can Actually Pay Off

In the volatile economic landscape of 2025, commercial loan borrowers are coming to us with a lot of concerns about interest rates. 

And we get it. After all, we’ve told you ourselves: lower interest rates are usually better.

But that’s not always the case. In fact, many borrowers are finding more financial opportunities with higher interest rates. 

This month, we’re going to go into more detail about how and when higher rates can help. To help us out, we’ve wrangled up Everest Chief Loan Officer, Brooke Jacob, to break down the basics. 

Thanks, Brooke!

Understanding Rate Swaps

“In specific market conditions, borrowers stand to gain hundreds of thousands of dollars breaking their swap,” Brooke explains. “Basically, they terminate their existing interest rate swap agreement by refinancing their loans early.”

While that might seem counterintuitive, Brooke says that it’s all part of a logical strategy that utilizes an in-depth understanding of the mechanics, risks, and real-world applications. In other words: the knowledge of an experienced loan officer. 

“It actually happens more regularly than you think,” says Brooke. “Interest rate swap is a tool that commercial borrowers often use to convert floating-rate loans into fixed rate obligations.” 

In this way, borrowers are changing a variable debt into a more stable one. This can help them build a more predictable payment schedule—and protect them against typical rate volatility. 

“At the start, a swap like this has no market value to either party,” Brooke explains. “But, as interest rates shift, so does the value of the swap. When fixed rates rise, the borrower’s fixed-rate swap becomes much more favorable because it means that the borrower is paying less than the current market rate. This transforms that simple swap into an asset.”

Understanding Swap Breakage

Swap breakage can help a borrower maintain maximum benefit from their refinance. Basically, to ‘break a swap’ means that the borrower is terminating that swap agreement earlier than originally agreed. Depending on market conditions, the borrower then pays or receives a mark-to-market adjustment. 

“If interest rates have gone up since the borrower took out their loan, they may receive a payment—also called a ‘breakage gain’,” Brooke says. “This gain can offset the cost of refinancing into a new loan, even if the new interest rate is higher.”

The 2025 Rate Environment

So why is this important to borrowers now? In short: the economic environment has changed significantly in the past few years. From 2022 to early 2024, many borrowers locked in fixed-rate swaps at historically low rates. In general, these changes were in response to macroeconomic uncertainty. 

But now, with central banks changing course, and inflation being moderated, interest rates have climbed. This creates a distinct window of opportunity for borrowers who are currently holding below-market, fixed rate swaps. 

“People who took these swaps when rates were 3, 4, or even 5 %, are now in possession of an asset,” Brooke says. “If they choose to refinance their debt or sell their property, breaking the swap can yield them a significant cash benefit.”

For clarity, here’s a recent example. One of our commercial clients came to us for refinance earlier this quarter—and the results are telling.

How an Everest Client Saved Over $500K on Their Refinance

“A couple months ago, one of our commercial clients came to us for help refinancing a twelve-million-dollar real estate loan,” details Brooke. “Their original swap fixed the interest rate at six percent. We were looking at conditions and new offerings at four-point-one-five percent, which showed that their existing loan had a lot of value in the market—even just as a rollover.”

The Everest team took this general data and performed a comparative analysis evaluating the value of holding the loan versus two refinance options: rollover and mezzanine.

“Ultimately, the borrower chose the refinance rollover option,” says Brooke. Despite paying a little over four million in closing costs and the fact that the new loan rate was higher than the senior loan rate in the mezzanine structure, the refinance was still able to produce significant value for the client.”

“After accounting for all costs, the client still gained over five-hundred-thousand dollars on their refinance,” says Brooke. “This case is a perfect example of the financial upside that can result from strategic refinance.”

Key Mechanics: How Swap Breakage Value Is Calculated

The value of a swap breakage is essentially the difference between the fixed rate of the original swap and the current market swap rate. That amount is further discounted over the remaining life of the swap. 

The total calculation includes an evaluation of:

• The present value of remaining fixed vs. floating cash flows

• Discounts for time value of money

• Adjustments for credit spreads and market conditions 

“The final value of a swap breakage can fluctuate regularly,” explains Brooke. “That’s why it’s so important to have the analysis completed by experienced loan officers. They’ll know what numbers to factor in at any given time.

What To Consider Before You Refinance

While we’ve clearly demonstrated that a high-interest refinance strategy can offer strong potential benefits, like any financial move, it’s not without risk. An experienced loan officer can help you navigate the most important considerations, such as:

• Market Timing – Swap values can shift quickly along with interest rate movements.

• Transaction Costs – Legal, title, and origination fees may eat into potential gains. 

• Lender Restrictions – Prepayment penalties, lockout periods, and terms vary by lender.

• Financial Disclosure – Breakage gains on statements can impact taxes and ratios.

So, is a rate swap or swap breakage the right choice for you? Only time (and expert consultations) will tell. In general, we recommend that our commercial borrowers schedule a swap breakage analysis as part of their annual financial planning process. 

“It’s important to bring this up now, while interest rates are relatively higher,” says Brooke, “because, if you’re going to do a swap refinance, now might be the perfect time. The key is to talk to an expert; they can help you decide.”

Everest says: We help make your 

refinance more financially stable. 

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