Rethinking refinancing

Because of the following three reasons, refinancing your commercial property might be an exciting strategy to fund your developing firm or gain extra cash.

 

1.Increase Savings

Refinancing a commercial property can result in savings of up to S$10,000 for company owners (depending on the loan size).

This can achieve these savings through a combination of

  • a few years of lower interest rates;
  • some fee waivers.

Most banks offer a promotional low-interest-rate period of three years to new and refinancing customers, depending on the bank. On the other hand, smaller and more active financial institutions may also waive specific fees (lawyer, valuation, facility, and fire insurance fees).

We recommend planning because requesting adjustments (or refinancing) to the loan within the “lock-in period” would frequently result in a penalty cost.

Suppose business owners aren’t diligent in monitoring and managing their loans. In that case, they may wind up paying significantly more for their loans when the promotional time is over (e.g., Prime Lending Rates).

2. Getting Access to Other Financial Facilities

Refinancing a property loan can be a burden for some business owners.

While business owners can increase the value of their properties by making minor improvements, they may not be qualified to acquire unsecured or clean-based credit facilities such as trade credit lines or working capital loans.

An ambitious bank or financial institution may even grant positive leverage when new borrowing limits are approved more extensively than the commercial property’s market worth.

3. Unlocking Investment Value

You may also refinance your property loan if its value has increased since you first took out the loan.

The same Loan-to-Value (LTV) ratio can be increased by refinancing a property loan at a higher property value.

E.g., When you purchased your property in 2000 for $700,000, you were thrilled. In 2017, you owed $250k on your debt. Your property, on the other hand, is now worth $1,2 million. You can release the value of your house through a refinancing of up to 70%. A total of $840k is obtained by multiplying $1.2 million by 0.7. $250k (unpaid loan) subtracted from $840k = $590k (cash)

Conclusion

In light of the advantages outlined above, it may be worth it to go through the effort of refinancing your commercial property.

Published On: September 27th, 2021 / Categories: Uncategorized /