Businesses with unsecured debt carry unnecessary risk. Loans and credit card balances should be kept to a minimum. However, the reality of doing this can be complicated.

The longer that debt is held, the higher the interest repayments will be. Business loans and credit cards can incur significant amounts of interest within a single calendar year.

Debt can be a financial tool, but when it becomes too much of a liability, consolidation with cash-out refinancing can help. You can leverage your existing commercial real estate asset with a new mortgage product that streamlines your finances. Learn the advantages and find out if this is the best option for your company.

Interest Rates are at Record Lows

Following the recent announcement that the United States Federal Reserve would drop its fund’s rate to a range of 1.50% – 1.75%, the Bank of Canada has followed suit.

As of October 30, 2019, the policy rate is sitting at a steady 1.75%. This is one of the lowest rates in history and it’s great news for commercial real estate owners. It will result in lower interest rates from mortgage lenders at all levels. This makes refinancing a real possibility.

Cash-Out Refinancing vs. Traditional Commercial Mortgage Refinancing

If you want to reduce debt, there are two realistic options for your commercial property. These are cash-out refinancing and traditional mortgage refinancing.

  • Cash-out refinancing with a mortgage broker will allow you to leverage your existing equity. You will sign for a new mortgage at a higher value, allowing you to make the difference in cash. This cash will allow you to immediately pay down high-interest debt (such as loans and credit cards), leaving you with mortgage payments that are more affordable to maintain.
  • Alternatively, you can take the approach of traditional refinancing. If you initially borrowed a fixed-rate mortgage at a higher interest rate, refinancing will allow you to pay off the older mortgage and sign a new one close to today’s lower rate. This will reduce monthly repayments, allowing you to use the savings to pay down debt and reinvest in your business.

Either option is an excellent way to take advantage of the current low-interest-rate environment. If you’re paying interest on a mortgage that was closed before 2010, you’re almost guaranteed a better rate by refinancing today.

The Benefits of Debt Consolidation with a Commercial Real Estate Mortgage

There are sweeping benefits to refinancing. None of these should be ignored as you seek to reduce debt and interest payments.

  • Business credit cards can attract high rates, often in excess of 14%. Even a cash-out refinance will leave you with lower interest payments that are more affordable over the length of the mortgage.
  • Refinancing with a mortgage rather than with new loans or credit cards will allow you to consolidate your debt into one repayment. This is more convenient for accounting purposes.
  • Refinancing allows you to extend the current amortization of your mortgage. This could help to reduce your monthly expenditure on repayments and interest.
  • You can leverage a property asset and the equity you have in it. You will have more borrowing power when compared to short or mid-term business loans.

All these benefits need to be carefully considered as you plan the best consolidation approach for your business.

The Risks of Refinancing

There are also some potential downsides to refinancing, which can become apparent if debts aren’t managed properly

  • Because refinancing ties all your debt to your property, there’s the risk of foreclosure if you fail to keep up with repayments. Affordability and means assessment is key. A mortgage broker can help you to compare the best options.
  • Refinancing will attract new closing costs and brokerage fees. However, these will in most cases be offset by the lower interest payment over the term of your new mortgage.
  • Refinancing will mean extending the current term of your debt. You will need to consider how this fits your business strategy and future earnings projections.

Exploring Your Mortgage Options for Debt Consolidation

Refinancing is not something that you should rush into. Due diligence is essential, as is professional advice. If you want to explore your potential refinancing options, an Ontario commercial mortgage broker is the best place to start.

We can help you to determine eligibility, likely rates, and terms, and other details related to commercial mortgage refinancing. With a network of the most flexible and trusted lenders in Canada, we can find options that aren’t available with the largest banks.

Consolidating debt with a mortgage will simplify your repayments and allow you to focus on what matters most: growing your business!

To book an appointment to discuss your needs and learn more about how Mortgage Capital Investment can help you, call 416-877-7438 today, or contact us.

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