Wednesday, November 7, 2012

Fire Truck Refinancing Simple Formula

Last week, I shared some Fire Truck Refinancing Mistakes.

The goal of most fire truck refinancing is to reduce your Total Borrowing Cost.  So, why do most refinancing save little or no money.  Sometimes, they even cost money!

I'll share a simple and easy way to ensure you refinancing actually saves you money.
  1. Get a payoff amount from your existing bank.  This should be the full amount to pay off the existing loan.
  2. Ask the new bank to provide the exact same terms as your current loan.  That means the same payment dates, the same payment frequency, the same number of years.  It should match exactly.
  3. Compare the old and new payments.  If the new payment is less, you're saving money.  If not, the refinancing is actually costing you money.
Why the same terms?
The mistakes of last week were mostly caused when the terms changed.

By exact matching of terms, you can easily compare the old payment and new payment.  For example, if you currently have 5 annual payments left due March 1 of each year, ask the new bank to refinance the payoff with 5 annual payments due March 1. 

It's then very simple to compare the old with the new and save money.

Refinancing can have some slight of hand that can actually cost your department money.  By setting up an true "apple to apple" comparison, you will know if refinancing is your best choice.

Stay safe!
John R. Hill
First Bankers

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