Refinancing your commercial mortgage: what you need to consider

20/01/2020

Refinancing a commercial mortgage can be an expensive process. With many different factors to be taken into consideration, including market conditions, your current deal, and your long-term ambitions, finding a financing option that will optimise your business can be a confusing process. But it really does pay to take care with your new deal so that you can avoid paying more in the long run.

There are a number of reasons why businesses might consider going down this route, each with different implications. Therefore, business owners should be aware of a few key things before deciding to refinance their commercial mortgage.

Why should you refinance your mortgage?

There are several occasions when it might be appropriate for you to refinance your commercial mortgage. Firstly, if you are looking at a potential purchase this is an obvious time to consider different mortgage schemes. Secondly, you can refinance a current mortgage in order to achieve a more optimal financial deal, such as a shortened term.

What are the benefits of refinancing your mortgage?

The benefits of this finance option are intrinsically influenced by your motivations. That being said, the biggest incentives of refinancing tend to be securing a more favourable interest rate and freeing up cash for other purposes.

If you are looking to improve upon your current deal, then you can benefit in a number of ways, including lower interest, shorter terms, and changing mortgage structure. For example, if you have a standard variable rate with a lender or if you are paying a fixed rate, refinancing can get you a more favourable interest rate. One factor to consider with this option is that refinancing a fixed rate mortgage may incur early redemption charges.

Alternatively, you may want to raise funding for your business. If your business owns its own premises, you can refinance your property’s commercial mortgage. This is a way to raise funds for your business, increase equity available, and can be used to fuel expansion or perhaps debt consolidation.

What are the potential risks?

In the case of purchasing a property there will always be financial risks, such as not keeping up with your loan repayments. The same risks apply to refinancing your mortgage.

From a debt servicing perspective, a longer term will make the repayments lower, but increase the cost of interest overall. From a lender perspective, the loan will be affected by the borrower’s circumstances. For a business, they will consider their trading profits and therefore how much they can afford. Whereas with a landlord, they will look at rental income and the quality of the tenant.

Therefore, finding the right lender and the right financial scheme for you is essential to getting the best deal.

Is refinancing the right move for you?

 The key question to ask here is: what do you need the money for and what is the most cost-effective way to raise this funding? Refinancing is generally more long-term, offering borrowing against the property with a repayment term of 10-25 years.

Therefore, this financing method is not suitable for businesses needing short-term money or quick cashflow. If, for example, your business requires cash to acquire new machinery, asset finance or additional working capital from the bank may be more appropriate for these needs.

External factors such as market conditions may also come into play. The financial market will fluctuate, and this may be reflected in changes in interest rates or loan terms. Market changes may create the opportunity to find a more favourable deal on your mortgage.

Your long-term business intentions are also important. If you plan to sell the property in the near future, then you may need a more flexible lending structure to accommodate this.

How can Prydis help?

At Prydis we offer invaluable advice about what financing method is going to support your business goals. By researching the market and understanding your business, an adviser can find you the best deal that accommodates your circumstances.

For existing clients, we will already have all the necessary financials to offer advice on refinancing a mortgage. If we believe there is a better deal, we will proactively make experienced and informed recommendations as part of our service offering.

With our multidisciplinary in-house team working together, there is no need for third party solicitors – we can provide everything you need to refinance commercial property under one roof. We have a holistic process for reviewing your financial options which involves input from all areas in your business.

As an independent wealth performance management firm, we are unbiased in our approach and unlimited in the funding methods we can provide. We are able to look outside the box and support the entire journey. Ultimately, your financing method needs to suit your specific goals and Prydis can provide uniquely personal financial advice tailored to your circumstances.

If you want to find out more about our wealth performance management services or whether refinancing your mortgage is the right move for you, get in touch with out expert team today.

Nick Cross

This article was written by Nick Cross

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