How long to amortize refinance costs for business loan

## How Long to Amortize Refinancing Costs for Business Loans

When you refinance a business loan, you’re essentially taking out a new loan to pay off your old one. This can be a good way to get a lower interest rate, a shorter loan term, or both. However, there are also some costs associated with refinancing, such as closing costs and appraisal fees.

These costs can be amortized over the life of the new loan, which means that they’re added to your monthly payments. The amortization period is the amount of time it takes to pay off the refinancing costs.

### Factors that Affect the Amortization Period

The amortization period for refinancing costs is determined by a number of factors, including:

* **The amount of the refinancing costs.** The higher the costs, the longer the amortization period will be.
* **The interest rate on the new loan.** A lower interest rate will result in a shorter amortization period.
* **The loan term.** A shorter loan term will result in a shorter amortization period.

### How to Calculate the Amortization Period

To calculate the amortization period, you can use the following formula:

“`
Amortization period = (Refinancing costs / Monthly payment) x Number of months in loan term
“`

For example, if you have refinancing costs of $1,000, a monthly payment of $500, and a loan term of 5 years (60 months), your amortization period would be 2 years (24 months).

“`
Amortization period = (1,000 / 500) x 60 = 24 months
“`

### Pros and Cons of Amortizing Refinancing Costs

There are both pros and cons to amortizing refinancing costs.

#### Pros

* **Lower monthly payments.** Amortizing the costs over the life of the loan can help to lower your monthly payments.
* **Improved cash flow.** Lower monthly payments can free up cash flow for other business expenses.
* **Shorter loan term.** A shorter amortization period can help you to pay off the refinancing costs faster.

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#### Cons

* **Higher interest costs.** Amortizing the costs over the life of the loan means that you’ll be paying interest on them for a longer period of time.
* **Increased risk.** If you amortize the costs over a longer period of time, you’re more likely to default on the loan if interest rates rise or your income decreases.

### Tips for Amortizing Refinancing Costs

If you’re considering amortizing refinancing costs, there are a few things you can do to minimize the potential drawbacks:

* **Get a low interest rate.** A lower interest rate will reduce the amount of interest you pay over the life of the loan.
* **Choose a short loan term.** A shorter loan term will reduce the amount of time you’re paying interest on the refinancing costs.
* **Make extra payments.** Making extra payments on the loan can help you to pay off the refinancing costs faster.

### Example

Here is an example of how amortizing refinancing costs can affect your monthly payments.

Let’s say you have a business loan with a balance of $100,000 and an interest rate of 5%. You decide to refinance the loan with a new loan with a balance of $95,000 and an interest rate of 4%. The refinancing costs are $1,000.

If you amortize the refinancing costs over the life of the new loan (5 years), your monthly payments would be $1,958.42.

“`
Monthly payment = ($95,000 + $1,000) / (60 x 0.04) = $1,958.42
“`

However, if you pay the refinancing costs upfront, your monthly payments would be $1,916.67.

“`
Monthly payment = $95,000 / (60 x 0.04) = $1,916.67
“`

As you can see, amortizing the refinancing costs over the life of the loan can save you money on your monthly payments. However, it’s important to weigh the pros and cons carefully before making a decision.

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