To refinance or not: 4 questions you should ask first

If you’ve been servicing an existing commercial property loan for a while, it may be worth thinking about refinancing. Refinancing is an opportunity for you not only to lower your monthly mortgage repayments, but also borrow more money against your property if you need to. Here are some things to consider before refinancing:

1. What exactly is refinancing anyway?

Refinancing is replacing an existing loan with a new one. Ideally, the new loan should have better loan terms which put you in a better financial position. In general, refinancing involves first identifying a more ideal loan to pay off your existing debt, applying for it, and making payments on the new loan thereafter.

2. Why should I refinance?

Refinancing can bring about several potential benefits. For starters, if you are servicing a long-term loan, a better interest rate can bring about significant savings. Refinancing could also help you manage your cash flow better by lowering your monthly payments as the loan clock is effectively restarted. If business loan interest rates are expected to rise in the future, switching from a floating to fixed interest rate loan could offer you some protection.

3. What is the difference between refinancing and repricing?

Refinancing with a different bank could incur expensive legal fees. When you reprice your loan, however, you stay with the same bank but sign a different loan agreement – usually with better terms. The main advantage of repricing is avoiding the paperwork and legal fees associated with refinancing with a different bank.

4. How much can I save from refinancing?

If, for example, you have an outstanding loan of $200,000 with 20 years remaining at a 2 percent interest rate, your monthly repayments are $1,020. If you manage to refinance with a different bank at a 1.5 percent interest rate, your monthly payments will now be just $965. However, be mindful that refinancing with a different bank will result in legal fees, so be sure to include those in your calculations. Check out DBS commercial loan calculator to estimate your monthly repayments.

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