Sunday, March 11, 2012

Refinancing - An Option that Makes Sense

A couple of weeks ago I wrote about how members of council need to ask for and take advice from a wide variety of sources, one of which is city staff. So I was very pleased to find, in this week's council package, a memo from the financial services department, outlining very clearly how the city could save over half a million dollars by refinancing an old debenture.

The debenture in question is one that was issued in the late 1990s (before my time on council) for upgrades to the Pollution Control Centre. There's $5 million remaining to be paid, with a current rate of 6%, and an end date of 2018.

Now, 6% is much higher than current rates, so one would hope that we would be able to take advantage of the current financial situation. But, just like trying to get out of a mortgage, there are costs associated with refinancing, so it only makes sense if the resulting savings are greater than the refinancing costs.

Financial Services, who are our experts in these matters, believe that tendering this debenture for refinancing could cut the interest rate in half, and save us a considerable amount. They have clearly laid out four options, which could save the city between $485,000 and $712,000, depending on the term of the refinancing and whether we opt to pay monthly or yearly. The highest savings would come with shortening the term by two years, and paying monthly, just like you can save money on your mortgage interest costs by shortening the term and increasing your payments to weekly or biweekly rather than monthly.

I like the idea of saving the city, and thus the taxpayer, money, both by reducing the amount of interest that we're paying, and by shortening the length of time that we're in this particular debt, so I'll certainly be supporting this recommendation.

I also appreciate the efforts of Financial Services in bringing this forward. The intricacies of all of the financial arrangements that the city is involved in are far beyond the capacity of council members to keep up with, and it's good to know that we have staff who can find these opportunities to benefit the city, and present them clearly and concisely. I can only encourage them to keep looking.

"If you would be wealthy, think of saving as well as getting." - Benjamin Franklin

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