Last updated: • Not financial advice
Why Owners Refinance
Owners refinance for three core reasons: lower rate, different structure (term, amortization, balloon), or to release cash by extending amortization. A fourth: removing covenants or personal guarantees. The right decision combines math (does it save?) and fit (does it suit your mission and risk tolerance?).
Cost Components You Must Count
- Origination fees: Points or flat fees from the new lender.
- Third‑party costs: Appraisal, title, escrow, legal, registration.
- Prepayment penalty: Make‑whole, step‑downs, or simple percentage from the current lender.
- Interim interest and per‑diem: Timing differences between pay‑off and new funding.
- Cash opportunity cost: If you pay fees out‑of‑pocket instead of financing them.
Break‑Even Analysis (Step by Step)
- Use your current payoff amount and payment schedule as the baseline.
- Quote the new rate and structure (e.g., keep amortization or reset, add/remove balloon).
- Input both into the aircraft loan calculator. Export both amortization schedules.
- Sum remaining interest on the current path vs new path + all fees + any prepay penalty.
- Compare totals and the monthly/quarterly difference; compute months‑to‑break‑even.
For calculator mechanics, see how the calculator works and amortization basics.
When It’s Usually Worth It
- Rate drops materially: As a rule of thumb, a 75–125 bps reduction with ≥ 3–5 years remaining often clears costs, but verify with your numbers.
- Balloon take‑out: If you face a term‑end balloon, early refinancing can remove refinance risk and smooth payments.
- Structure mismatch: If your current term is too aggressive for cash flow, extending amortization can relieve pressure (total interest may rise).
Detailed Break‑Even Example
Assume $1,000,000 remaining balance at 8.5% with 7 years left; new offer is 7.2% for 7 years, $8,000 in closing costs, and a 1% prepay penalty ($10,000). Run both scenarios in the calculator, export CSVs, and compare total interest. If the interest savings is ~$45,000 and total new costs are $18,000, your net savings is ~$27,000; monthly savings of ~$200–300 implies a break‑even in 5–7 years. If you will sell in 3 years, the case weakens—model that horizon explicitly.
Advanced: If you discount cash flows at your after‑tax hurdle (e.g., 6–8%), compare NPVs of old vs new schedules. Add optional scenarios where you finance fees vs pay cash—financing increases total interest but preserves liquidity, which may be valuable for operations, insurance, and maintenance reserves.
Process and Timeline
- Collect payoff letter and review prepayment clause.
- Quote new terms; provide updated financials and aircraft documentation.
- Order appraisal/title as needed; coordinate escrow.
- Bind insurance with correct lender wording; see insurance requirements.
- Close: record lien release and new lien; confirm registration updates via the FAA registry.
Refi Traps to Avoid
- Rolling excessive fees into principal and erasing savings.
- Resetting amortization to a new long term and paying much more total interest without clear benefit.
- Letting appraisal timing slip and missing favorable market windows.
When It’s Often Not Worth It
- Large prepay penalties: A make‑whole or hefty step‑down can eliminate savings.
- Late in the amortization curve: Most interest was already paid early; the savings from a rate cut shrink later on.
- Short remaining horizon: If you’ll sell soon, switching may not recoup fees.
Variable to Fixed (or Vice Versa)
Converting from a variable to fixed loan can make sense if rising rates strain cash flow or planning. Conversely, flipping to variable is reasonable when you expect material rate declines and have ample reserves to manage volatility. Review our comparison of fixed vs variable aircraft rates.
Documentation and Timing
Assemble a clean package: recent financials, liquidity statements, tax returns, aircraft logs, maintenance status, and insurance. Align payoff letters and escrow logistics to avoid title gaps. The FAA aircraft registry is often referenced for lien releases and ownership records.
Credit, LTV, and Collateral
Refinances still underwrite: lenders look at credit score, DTI/DSCR, liquidity, and LTV based on current market value. Older airframes and high‑time engines can compress LTV. See what lenders look for and how to improve approval odds.
Tax Notes (Consult Your Tax Advisor)
A refinance can alter interest deductibility and depreciation timelines depending on use and entity. Consult a CPA experienced in aviation. Useful references: IRS Publication 535 (business expenses) and Publication 946 (depreciation). Industry primers from NBAA can also help frame issues.
Checklist Before You Refi
- Confirm current payoff and prepayment terms in writing.
- Collect financials, aircraft logs, insurance binder.
- Decide on fixed vs variable after modeling scenarios.
- Compare at least two quotes (rate, fees, covenants).
- Decide whether to finance fees or pay out‑of‑pocket.
- Calendar for lien release, title, and registration steps.
FAQs
Is there a minimum time before I can refinance?
Some lenders impose seasoning (e.g., 6–12 months). Others allow earlier if costs are covered. Check your note.
Can I roll fees into the new loan?
Often yes, subject to LTV caps and appraisal value. Rolling increases total interest—compare both ways in the calculator.
Can I remove a personal guarantee?
Possibly, with stronger financials or lower LTV and a lender willing to accommodate. Structure and pricing may change.
Next, compare fixed vs variable and review balloon strategies. Ready to run numbers? Head to the calculator.
Related Articles
External references: FAA Registry · IRS Pub 535 · NBAA