How much can I save when I refinance my commercial property loan?

How much can I save when I refinance my commercial property loan

 

 

Case Study:

Mr Ng, a 45 year old coffee shop owner runs ABC coffee shop at Bedok. His current coffee shop commercial property loan interest rate has risen to 3.75% in the fourth year. During kopi chit chat sessions, he heard from his friends who also owns commercial units for their businesses mentioned that they are paying much lower in interest rate. The current outstanding mortgage on Mr Ng’s coffee shop mortgage is about $1.9 million.

 

Solution:

As Mr Ng is not savvy with finance and is busy with the daily running of his coffee shop business, he contacted a mortgage broker to assist him on reviewing his options to refinance his coffee shop commercial property loan. Upon further fact-finding after getting in touch with Mr Ng, we proposed a range of refinancing options for his consideration. Mr Ng shortlisted a package with effective interest rate at only 1.48% for the 1st year and 1.68% in the 2nd year.

 

 

Let’s take a look at the numbers on how much Mr Ng will save every month when he refinanced:

> Prevailing: 3.75% / $1.9 million / 25 years loan tenure
   - Monthly instalment: $9769
   - Principal: $3831.50
   - Interest: $5937.50

 

> New 1st year: 1.48% / $1.9 million / 25 years loan tenure
   - Monthly instalment: $7581.00
   - Principal: $5237.67
   - Interest: $2343.33

 

> New 2nd year: 1.68% / $1.9 million / 25 years loan tenure
   - Monthly instalment: $7761.00
   - Principal: $5189.59
   - Interest: $2571.41

 

Let's take a look at how much Mr Ng would save over the next 2 years:

> 1st Year

* Savings in monthly cash flow: $2188 per month
* Savings in Monthly Principal: $1406.17 per month
* Savings in Monthly Interest: $3594.17 per month
* 1st Year Total Savings: $43,130.04 

 

> 2nd Year

* Savings in monthly cash flow: $2008 per month 
* Savings in Monthly Principal: $1358.09 per month
* Savings in Monthly Interest: $3366.09 per month
* 2nd Year Total Savings: $40,393.08

 

* Total Savings over the next 2 years: $83,523.12