When Is the Right Time to Refinance a Commercial Loan?

July 13, 2017

When Is the Right Time to Refinance a Commercial Loan?

When it comes to commercial loans, you’ll find there is a lot more flexibility than with residential home loans. This is because lenders tend to be more willing to negotiate on commercial rates. With steeper competition due to less demand for commercial loans, you’ll also find banks offering special discounts and waivers to attract market share.

You may be able to benefit immensely when you refinance a commercial loan. This is true as long as you are in a good position to refinance. Are you ready to apply for a new commercial loan?

How Much Equity Have You Built Up?

Before refinancing, take a look at how much equity you’ve built up with your property. With commercial refinancing, lenders want to see that you’ve paid down your current loan enough so you’ll only need to refinance at 60 to 70 percent of the loan to value ratio, or LVR. Keep in mind, the actual value may have gone up or down since you started your repayments.

There are lenders that will consider your application if you still owe up to 80 percent. With a higher LVR, you will likely also pay lender’s mortgage insurance and you may be offered a higher rate.

Should You Refinance to a Fixed or Variable Rate Loan?

Another good reason to refinance is interest rates. Depending on what market rates are doing and your financial preferences, you may benefit from switching to a fixed rate or a variable rate. For example, if rates are low right now, by refinancing to a fixed rate commercial loan, you could see benefits within a couple of years. You may also want to refinance to a variable rate if rates are lower, just remember when rates go back up, your repayments will go up as well.

Have You Checked Your Credit File Lately?

When you refinance, you’ll be eligible for the best rates if you have a high credit score. Has your credit improved since you started your current loan? What about other factors such as your debt-to-income ratio and your asset-to-liability ratio? If your financial situation has experienced an overall improvement and you’ve been able to boost your credit, you are likely in a good position to refinance. On the other hand, if you’ve had credit issues, multiple loan enquiries, or your income and asset to debt ratios have seen better days, you may not want to refinance right now.

You Could Qualify for Tax Benefits

Another reason to consider applying for a new home loan is if you may be able to take advantage of tax benefits. For example, if you were already considering investing, when you use some of the equity in your commercial property to invest in property or shares, you may be able to take advantage of negative gearing and depreciation benefits. This would essentially help you save more by refinancing.

Whether you should refinance your commercial loan or not depends on your specific situation. If you’ve paid down your loan, are in a strong financial position, and could benefit from lower rates or other benefits, such as using your built up equity to invest and enjoy tax benefits, then you may want to seriously consider refinancing. Shop around to compare different lenders and what they have to offer. And, don’t forget you can negotiate to get a lower rate. As a savvy investor, you stand to save a lot with a great commercial loan.

Written by Refinancing.com.au

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