Aircraft Refinancing: When It Makes Sense and When It Does Not

When does refinancing an aircraft make sense?

Refinancing makes sense when what you gain, in lower payments, lower total interest or access to cash, clearly outweighs what it costs, and you will keep the aircraft long enough to collect. In practice that comes down to a handful of situations:

• Rates have fallen meaningfully since you borrowed.
• Your profile has improved: stronger financials, more operating history or a better credit file.
• A balloon is coming due and has to be paid, refinanced or settled by a sale.
• Cash flow needs relief, and a longer amortization would lower the payment.
• You want a fixed rate instead of a floating one, a common driver according to AvBuyer.
• Ownership is changing, such as moving the aircraft into an LLC or a partner leaving, which AOPA Aviation Finance says typically requires a refinance.
• You need capital for an overhaul, avionics or expansion and want to borrow against equity in the aircraft.

The refinancing structure guide covers how rate-and-term and cash-out refinances differ.

How big a rate drop do you need?

For a rate-only refinance, AOPA Aviation Finance suggests waiting for a drop of at least a full percentage point, and warns that a half point after a recent loan probably will not let you recoup the costs for years. An earlier AOPA Aviation Finance article used a lower first screen, asking whether the new rate is at least 50 basis points lower, alongside how long you will keep the aircraft. Both point to the same test: the rate drop only matters in relation to your costs and holding period.

AOPA Aviation Finance also notes that aircraft rates are sticky on the downside. Lenders tend to cut rates more slowly than they raise them, so a cut in benchmark rates does not mean aircraft quotes fall the same week. Our guide to aircraft loan interest rates explains what moves them.

How do you work out the breakeven?

Divide the total cost of refinancing by the monthly savings. The answer is the number of months until the refinance pays for itself. AOPA Aviation Finance suggests that if you will keep the aircraft more than two or three years, refinancing may be worthwhile, which fits a breakeven well inside that window.

These numbers are hypothetical and only show the math. Suppose an operator owes $1,200,000 at 9.0% with 144 months remaining, and has a quote at 7.25% for the same 144 months, with $15,000 of total refinancing costs.

A 1.75-point drop pays back in about a year. A half-point drop takes almost four years, which is why AOPA cautions against refinancing for small moves. Test your own figures in the aircraft refinance calculator.

What is recasting, and when does it beat a rate cut?

Recasting stretches the amortization so the payment drops. AOPA Aviation Finance calls it one of the rarely mentioned side benefits of refinancing, and gives an example in which recasting a roughly $1.5 million balance to 15 years improved monthly cash flow far more than a small rate cut alone.

In the hypothetical loan above, moving to 7.25% and also stretching the remaining 144 months to 180 would bring the payment to about $10,954, roughly $2,700 a month less than today. But the operator would pay about $5,300 more in total than by simply keeping the current loan, before costs, because payments run three years longer. Recasting is a cash-flow tool, not a savings tool. It makes sense when the operation needs breathing room, for example during a fleet expansion, and the aircraft will hold its value well enough to support the longer schedule.

AvBuyer and AOPA both note that borrowers with a clean payment history can often recast with their existing lender, which may avoid some of the cost of a full new loan.

What costs and penalties can erase the savings?

Refinancing repeats much of the purchase process. AOPA Aviation Finance notes it includes escrow and a new aircraft valuation that must be less than 30 days old. AvBuyer adds FAA lien searches and an appraisal by the new lender. Typical items to price:

• Prepayment charges on the current loan. AvBuyer reports fixed prepayment fees are very common in term-loan contracts.
• Make-whole provisions, which AvBuyer describes as variable fees that protect lenders when a borrower repays early in a falling-rate market.
• Appraisal or valuation, title and lien search, and escrow fees.
• New lender origination or documentation fees, and your own legal review.

Read your current note before you shop. If the prepayment charge is large, it may be cheaper to wait until it steps down. The aircraft appraisal guide explains how the new valuation can also change how much you can borrow.

Should you refinance to fund an overhaul or upgrade?

Often, yes. AOPA Aviation Finance says refinancing to fund overhauls or avionics is very common. AvBuyer describes lenders rewriting a loan to cover the remaining principal plus planned modifications as a win for both parties, because the work can support the aircraft's value. The caution from AOPA is not to give up a low existing rate just to raise cash. If your current loan carries a rate well below today's market, a separate add-on loan for the work may cost less overall than refinancing the whole balance.

Lenders usually advance less on a cash-out refinance than on a straight rate-and-term refinance, so the aircraft's current value, not what you paid for it, sets the ceiling.

Does the type of aircraft affect refinancing?

Yes. AOPA Aviation Finance reports that lenders are usually more comfortable recasting a turboprop than a jet. As a jet type ages and newer technology arrives, obsolescence risk grows and the number of lenders comfortable refinancing it shrinks. It also notes that financing for newer types has improved as their secondary markets matured. Aircraft that hold value well, and that many lenders know, are easier to refinance on good terms. Our guide to aircraft residual values explains why.

Aircraft refinancing checklist

1. Pull your current note: rate, remaining term, balloon and any prepayment or make-whole terms.
2. Decide the goal: lower total cost, lower payment, fixed rate, cash out or an ownership change.
3. Ask your current lender first, then get at least one outside quote on the same assumptions.
4. Total the costs and divide by monthly savings to find breakeven, and compare it with your holding period.
5. Compare total interest over the remaining life, not only the payment.
6. Have records and financials ready for the new valuation and underwriting.

This article is general information, not individual advice; confirm tax and legal points with your own advisors. If you want quotes compared side by side, you can start a deal file with JetFinex.

Want the payment on a specific aircraft? Try the aircraft loan calculator: set the price, down payment, rate, term and balloon and see the monthly payment and total interest.

Frequently asked questions

How much does an aircraft interest rate need to drop to refinance?

AOPA Aviation Finance suggests at least a full percentage point for a rate-only refinance, and an earlier AOPA article used at least 50 basis points as a first screen. The real test is breakeven: costs divided by monthly savings, compared with how long you will keep the aircraft.

What does it cost to refinance an aircraft?

Expect much of the purchase paperwork again: a new valuation, title and lien searches, escrow and lender fees, plus any prepayment charge on the current loan. AOPA Aviation Finance notes the new valuation must be less than 30 days old.

Can I refinance an aircraft to pay for an engine overhaul or avionics?

Yes. AOPA Aviation Finance says refinancing to fund overhauls or avionics is very common, but warns against giving up a low existing rate to do it. An add-on loan can sometimes be cheaper.

Is it easier to refinance a turboprop or a jet?

AOPA Aviation Finance reports that lenders are usually more comfortable recasting a turboprop than a jet, because jets face more obsolescence risk, which can shrink the pool of lenders as the type ages.

Do I have to refinance if I move the aircraft into an LLC?

Often yes. AOPA Aviation Finance notes that changing ownership, such as moving the aircraft into an entity or a partner leaving, typically requires a refinance because lenders want the borrower and the registered owner to match.

Sources

• AOPA Aviation Finance, Should you refinance after the Fed's rate drop?
• AOPA Aviation Finance, The best time to refinance your turbine
• AvBuyer, When and how should you refinance a bizjet?
• AOPA Aviation Finance, Can you finance an airplane purchase to include overhaul or avionics refurb?
• AOPA, Time to refinance?

This guide is educational and is not tax, legal or investment advice. See our editorial standards and disclosures. Spot an error? Tell us.