When is it time to refinance a turbine? The two determining factors we think an owner should consider when answering this question: is the new rate at least 50 basis points lower? And how much longer do you plan to keep the airplane?
If the current interest rate environment is such that the prevailing interest rates are half a percentage point less than what you currently have, it’s worth it to do the math and consider it. In most cases, if it’s almost a point less, it’s always going to be a better deal to refinance than to keep what you’ve got.
Refinancing does come with some restrictions though. For one, your current lender probably stipulated a prepayment penalty to discourage you from refinancing at a lower rate, specifically elsewhere. So first, if there is a pre-payment penalty, find out what it is and compare it to the total savings from a refi. We’d hate to see you pay more to get out of a deal than into a new one.
If you plan on keeping the airplane for more than two or three years, refinancing might be a good option. The longer you plan to hold that aircraft, the greater the likelihood that it’s going to make sense. It’s always worth talking to AOPA Aviation Finance and having us run the numbers with you.
One of the rarely mentioned side benefits of refinancing is “recasting.” That’s where the amortization curve is extended on the loan. Let’s say you originally had a $2 million loan on a five-year-old TBM 900, and you were doing 15-year financing on it. And let’s say at the time you had a 4.5% rate. Your monthly payment would be just over $15,300. If you were five years in, your unamortized balance would be around $1.5 million.
If you then were to refinance and get a 4 % interest rate, you would save about $300/ month over the remaining 10 years. However, if you were to recast the amortization schedule—in other words move it out to 15 years—you would lower your payment to $10,900/ month. That’s a significant improvement in your cash flow. That’s just with only 50 basis points better in rate.
Generally speaking, because there exist more options for a turboprop single than for a light jet, it’s a good idea to have a conversation with AOPA Aviation Finance if you’ve got a light jet you’re considering refinancing. Lenders usually are going to be more comfortable recasting amortizations on a turboprop than on a jet. That’s partly because turboprops tend to be single-engines, which means lower maintenance and reserve costs. This is also partly because of the issue of obsolescence in the jet world, mostly due to rapid evolution in technology. As a turbine aircraft becomes more obsolete, the number of lenders comfortable refinancing it is going to diminish.
The good news for buyers interested in the HondaJet and the Cirrus Vision Jet is that lenders are seeing a solid secondary market for both. Because those aircraft have been in production for about five years each, lenders are finally getting more comfortable with them. A year and a half ago, those two aircraft would have been difficult to refinance.
Great advice. Great rates. From helpful and responsive reps you can trust. Three good reasons to turn to AOPA Aviation Finance when you are buying or refinancing an airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (800.627.5263), or click here to request a quote.