Refinancing existing dental practice debt

Start from the payoff, not the original loan

The comparison is between two things:

• What you have now: the current payoff balance, the payment you are making, and the number of months actually remaining.
• What is proposed: a new loan sized to retire that payoff plus any exit charge plus the new fees, on a new rate and a new schedule.

Two mistakes make a refinance look better than it is. The first is calculating savings from the original loan amount rather than the current payoff: you are not borrowing that money again. The second is treating interest you have already paid as a future cost of keeping the loan. It is gone either way, and it is not part of the decision.

The only comparison worth making is between the future cash each option requires, from today forward.

A lower payment does not necessarily lower total cost

Most refinance payments fall for a simple reason: the repayment period was reset. Seven years of remaining term becomes ten, so each payment is smaller and there are more of them. Add exit costs and new fees and it is entirely possible to pay several hundred dollars less each month and considerably more in total.

That trade can still be the right one. Monthly cash flow has real value when a practice is tight, when a project needs funding, or when a variable rate is creating risk you would rather not carry. But it should be a decision you made, not a conclusion you were shown.

Put both structures side by side in the loan comparison: enter the current payoff with the months actually remaining as one scenario, and the proposed loan with its fees as the other. The tool will not name a winner, deliberately. It shows both, marks what makes them non-equivalent, and leaves the judgement with you.

Fixed, variable, and what you are really buying

Moving from variable to fixed usually costs something in rate. What it buys is certainty: a payment that does not move when the index does. Moving from fixed to variable does the reverse. Neither is generically correct, and a comparison that assumes today's variable rate persists for ten years is not a comparison at all, it is a forecast in disguise.

If the proposed loan is variable, ask what the payment becomes at the cap. If that number is unaffordable, the comparison has already answered itself.

Costs that are easy to leave out

• A prepayment penalty on the existing loan, which can be substantial and often declines on a schedule worth waiting for.
• New origination, guaranty, appraisal, environmental, legal, title and filing fees.
• A wider security package or a personal guarantee where there was not one before.
• New covenants, and the cost and inconvenience of the reporting they require.
• Consolidating a short remaining equipment loan into a long-term facility, which quietly stretches a five-year cost over fifteen years.

Refinancing to take cash out

Releasing equity as part of a refinance is a separate decision from improving the terms of existing debt, and it deserves its own arithmetic. Match the repayment period to what the money is for: a fifteen-year facility funding a five-year piece of equipment will still be outstanding long after the equipment has been replaced. If the cash is for a project, test the project itself in the expansion calculator before deciding how to fund it.