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Pros and cons of refinancing a commercial property

Refinancing a commercial property involves replacing your existing mortgage with a new loan. It may involve switching lenders or negotiating a new deal with your current one.

Refinancing a commercial property may be appropriate for several reasons. Perhaps your current commercial mortgage is ending, or you’d like to release equity to help with cash flow. Whatever your reason for refinancing, it’s helpful to understand the advantages and disadvantages before making any decisions. Here’s a summary of the pros and cons.

Advantages of refinancing

Lower interest rates

Refinancing can allow you to take advantage of lower interest rates in the market, potentially reducing your monthly mortgage payments and overall interest costs.

Improved cash flow

Securing a lower interest rate or extending the loan term will lower your monthly repayments and improve cash flow.

Access to equity

Refinancing can give you access to the equity in the property, which you could use for other investment opportunities, business expansion or property improvements.

Debt consolidation

If you have multiple loans or debts, refinancing can consolidate them into a single loan with a potentially lower overall interest rate and simplified payment structure.

Change in loan structure

Refinancing can allow you to modify the loan structure, such as switching from a variable-rate to a fixed-rate mortgage, for more stability.

Renegotiate terms

Refinancing presents an opportunity to negotiate better loan terms, such as more extended repayment periods, which can reduce immediate financial strain.

Disadvantages of refinancing

Costs and fees

Typically, refinancing incurs costs and fees that could outweigh any potential savings from a lower interest rate.

Potential early repayment charges

If your loan has an early repayment clause, paying off your existing loan before its term ends could incur penalties.

Risk of increased debt

Extending the loan term or accessing equity can increase the total debt burden, affecting long-term financial flexibility and overall profitability.

Market conditions

Market conditions, including interest rate fluctuations and changes in property values, can affect the feasibility of refinancing.

Restrictions and terms

New loan terms may have certain restrictions or requirements that limit future financial flexibility or property use.

Using a commercial finance broker such as ASC can help you navigate the commercial property refinancing process. Our expertise and industry knowledge can enhance your chances of securing the right terms and save you time and effort.

For help refinancing a commercial property, please get in touch.

Pros and cons of refinancing a commercial property

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