North Mill Equipment Finance: Early Payoff Policy

[Pages:8]North Mill Equipment Finance: Early Payoff Policy

Definition, Calculations and Benefits

AUGUST 2020 V4.0

Table of Contents

1. Overview: An explanation of North Mill's Early Payoff Policy for Loans 2. Instructions: How to use the Early Payoff amortization spreadsheet (also included in the Excel spreadsheet analysis) 3. Definitions and Calculations: Definitions of the key column headers in the spreadsheet 4. How to use the calculator to your benefit: Example A 5. How to use the calculator to your benefit: Example B 6. For more information

1. An Overview of North Mill's Early Payoff Policy for Loans

One of many features that sets North Mill apart from the competition is the company's Early Payoff Policy that's automatically included with our loan solution. Given that the majority of our transactions are structured as loans, the simplicity and competitive nature of the program has proven to be a major differentiator for referral agents who choose to promote the program to their customers.

What makes the policy so popular is that the premium charged is on the principal only. This is not considered typical in the equipment finance industry as most lenders charge a premium on both principal and interest when a borrower wants to pay off a loan in advance.

What's more, our Early Payoff Policy is designed to reward customers who make regular payments each month. By doing so, they can pay off the loan without premium or penalty after 18 consecutive, on-time payments. Aside from a small end-of-termination fee, the customer simply pays the principal balance of the outstanding loan.

As a North Mill referral agent, we're providing you with the tools necessary to leverage the program to its full extent. We've created an amortization spreadsheet so you can determine an estimated payoff amount for your customers.*

You can also leverage these documents to promote the benefits of North Mill, our loan product, and our game-changing Early Payoff Policy to new customers.

The screenshot above shows North Mill's Early Payoff Policy in action. Note row 18 highlighted in yellow; the broker chose " yes" in the variables box at the top of the screen in the upper left-hand corner to exemplify the 18-month perfect pay option for the customer. The prepayment price automaticallyadjusts to "0%" meaning that the final early payoff amount in this case is simply $39,720.81 ? the total of the ending balance of $39,345.81 plus the $375 early termination fee.

*Thi s quote will be an estimate only; pl ease contact North Mi ll's customer s ervice department or your a ccount manager to request a final payoff.

2. Calculator Instructions: Easy as 1, 2, 3

The instructions on how to use the amortization spreadsheet are included in the spreadsheet itself. For reference, we've included them here as well:

Step 1. Open the Microsoft Excel spreadsheet. We recommend you save it to your computer for future reference. Step 2. In the blue box called "Required Fields," enter the following:

? Loan Amount ? Original Term ? Monthly Payment For your convenience, we included the end of termination fee of $375. No need to make any changes in that field.

Step 3. If your customer plans to leverage the benefits of making 18 consecutive, on-time payments and enjoy the savings, then choose "yes" for the perfect pay question. If the customer is not sure, leave the defaulted "no."

After inputting all the required information, the spreadsheet will auto-calculate. You can print the full schedule for your customer or simply read the payoff quote over the phone.

3. Definitions and Calculations

Definitions to Help you Better Understand and Explain the Benefits of the Early Payoff Policy to Your Customer

The math in these definitions is based on the values shown in the highlighted fourth period of the loan as seen below

PREPAYMENT PRICE: The premium percentage your customer pays for

the month in which the loan is paid off. (8% fee months 1-12, 4% fee months 13-24, 2% fee months 25-36, No fee after 36th payment

EARLY PAYOFF PREMIUM: Total premium paid by your customer. Multiply the Ending Principal Balance for the month by the Prepayment Price plus the $375 termination fee: $94,687.38 x 8% + $375 = $7,949.99

EARLY PAYOFF AMOUNT: The total amount your customer pays to terminate the loan. Add the Early Payoff Premium to the Ending Principal Balance: $94,687.38 + $7,949.99 = $102,637.37

REMAINING TOTAL PAYMENTS: The sum of the customer's m onthly paym ents remaining: $3,200.89 x 44 months = $140,839.16

EARLY PAYOFF SAVINGS: The amount of moneysaved if your customer decides to payoff the loan early in the 4th period as compared to the total amount still owed if the loan is not paid early. Subtract total Remaining Total Payments from Early Pay

Off Amount: $140,839.16 $102,637.37 = ($38,201.79)

PAYOFF SAVINGS TO EARLY PAYOFF %: Percentage of savings your customer incurs by dividing the Early Payoff Savings by the Early Payoff Amount: ($38,201.79) / $102,637.37= 37%

Period

Beginning Loan Balance

Interest

Principal Monthly Payment Payment

Ending Principal Balance

Prepayment Early

Price Payoff Premium

Early Payoff Amount

Remaining Total

Payments

Early Payoff Savings

Early Payoff Savings to Early

Payoff %

? Illustrative calculations shown in the grey and green boxes are based on a $100,000, 48 -month term loan with a monthly payment of $3,200.89

? The green section of the calculator is the "payoff" section and illustrates how much your customer would pay for an early pay off premium

? Within the grey section, the Early Payoff Savings column highlighted in red demonstrates the savings your customer can achiev e by calculating the aggregate total payments left in each month and comparing that number to the savings he or she would achieve by paying off the loan in that s ame month

4. How to Use the Calculator to Your Benefit: Example "A"

Using the Payoff Policy to Close Your Deal

North Mill's prepayment policy is unique in the industry and may offer your customer substantial savings in the long run -- savings not achievable from other lenders' prepayment policies. Using the table, you can demonstrate the different payoff options and associated savings depending upon the period in which the loan is paid off. Below, we show the savings incurred if your customer were to pay off the loan in the 23rd period of the term.

Example A:

Early Payoff

No Early Payoff

Period

Beginning Loan Balance

Interest

Principal Payment

Monthly Payment

Ending Principal Balance

Prepayment Early

Price

Payoff

Premium

Early Payoff Amount

Remaining Total

Payments

Early Payoff Savings

Early Payoff Savings to Early

Payoff %

Note period 23 highlighted in yellow. Your customer's early payoff amount at month 23, circled in purple, is $66,057.62. This is based on the remaining principal balance only. The payoff amount is calculated by taking the ending principal balance at month 23, multiplying by the 4% prepayment price, and a dding the termination fee. Here's the calculation: ($63,156.36 principal balance) x (4% pre-payment price) + ($375 termination fee) = $66,057.62.

Now compare the loan's early payoff amount of $66,057.62 as circled in purple to the Remaining Total Payments when the loan is not paid off early. Even with the prepayment price of 4%, your customer saves $13,964.63 by paying the loan early vs. the total remaining payments with no early payment.

Important to note: Had your customer made 18 consecutive, on-time monthly payments, starting in the 18th period, the prepayment price would drop to 0% and would remain at 0% assuming he or she continued to make regular, timely payments. See Example "B" to demonstrate the savings incurred using the "perfect pay" principle.

5. How to Use the Calculator to Your Benefit: Example "B"

Using the Payoff Policy to Close Your Deal: Perfect Pay

Using the amortization table, you can show your customer how much savings may be accrued if he or she practices "perfect pay."

Example B: "Perfect Pay"

Period

Beginning Loan Balance

Interest

Principal Monthly Payment Payment

Ending Principal Balance

Early Payoff

No Early Payoff

Prepayment Early

Price

Payoff

Premium

Early Payoff Amount

Remaining Total

Payments

Early Payoff Savings

Early Payoff Savings to Early

Payoff %

In this case, your customer decides to pay off the loan at month 21 (see yellowhighlighted row). Because the customer made at least 18 consecutive on-time payments, the fee in the Prepayment Price column dropped from 8% to 4% to 0% starting in month 18. Clearly, it pays for your customer to remain current with the loan. Because the prepayment price at period 21 is also 0%, your customer is only required to pay the Ending Principal Balance shown at month 21, or $67,033.88, along with the early termination fee of $375, for a total payoff quote of $67,408.88. When compared to what the customer would have paid had he not chosen to payoff the loan early, a savings of 28%, or $19,015.15 is achieved.

6. For More Information on Early Payoff 5 ? 3 - 1

Continuing to suppPoarut loCuhrebsrlookcekr partners through technology, open dialogue, andwwmwa.nrokrethtminillgef.csoumpport

Vice President, Customer Relations

Main number: 203-354-3654

203-354-1283

Customer service: 800-998-7852

pcheslock@

Account management: 800-223-6630

Questions?

Please contact Paul Cheslock, VP Customer Relations or your North Mill Account Manager for more information

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