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Time to refinance?Time to refinance?

Factors to consider

When is it time to refinance a turbine aircraft? An owner should consider two determining factors: Is the new rate at least 50 basis points lower? And how much longer do you plan to keep the airplane?

If the current prevailing interest rates are half a percentage point less than what you have, it’s worth considering. If it’s almost a point lower, it’s usually a better deal to refinance than to keep what you’ve got.

Refinancing comes with some restrictions. For one, your current lender probably stipulated a prepayment penalty to discourage you from refinancing at a lower rate elsewhere. If there is a prepayment penalty, compare it to the total savings from a refi.

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.

One of the rarely mentioned side benefits of refinancing is recasting, 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 financed it for 15 years with a 4.5-percent rate. Your monthly payment would be just more than $15,300. Five years in, your unamortized balance would be around $1.5 million.

If you then were to refinance and get a 4-percent interest rate, you would save about $300 a month over the remaining 10 years. However, recasting the amortization schedule—moving it out to 15 years—would lower your payment to $10,900 a month.

Lenders usually are more comfortable recasting amortizations on turboprops than on jets. That’s partly because turboprops tend to be single-engine, which means lower maintenance and reserve costs, and partly because of the issue of obsolescence in the jet world.

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 getting more comfortable with them. A year and a half ago, those two aircraft would have been difficult to refinance.

Email [email protected]

aopafinance.com, 800-62-PLANE (75263)

Adam Meredith

Adam Meredith

President of AOPA Aviation Finance Company
Adam Meredith, President of AOPA Aviation Finance Company, is an aircraft finance professional with more than 15 years lending, small business management and customer service experience. Adam is a commercial pilot with multi-engine and instrument ratings.