Refinance Calculator – Compare Savings

A Refinance Calculator can be used to estimate how much a homeowner can save by refinancing their mortgage. Refinancing a mortgage is when you pay off your existing loan by taking out a new one. You may do this to get a better interest rate, change the term of the loan, lower your monthly payments or release some equity from your home.

It can be a great idea to refinance your mortgage if you are living in the US and there are lower interest rates available or you have changed your financial situation. For example, if you currently have a 30 year mortgage at 7% interest but qualify for a new loan at 6% interest you may save on your monthly repayments.

There may be some costs involved in refinancing your mortgage such as closing costs, lender fees, appraisal fees. A Refinance Calculator can help you work out how much you will save each month by estimating what your monthly payments would be, how much you could save, how much it would cost to refinance and when you would reach break even. This can help you work out if refinancing your mortgage would be beneficial.

This calculator can help you work out if you want to lower your monthly payments, pay off your mortgage quicker or convert from an adjustable rate to fixed rate mortgage.

How To Use The Refinance Calculator

It is easy to use the Refinance Calculator. You just need to enter your current mortgage details and refinancing details.

Follow the steps below:

• Enter Current Loan Amount – Enter the amount of principal you have left to pay on your current mortgage.
• Enter Current Interest Rate – Enter your current annual interest rate.
• Enter Remaining Loan Term – Enter how many years or months you have left to pay on your current mortgage.
• Enter New Interest Rate – Enter the estimated interest rate you would receive on your new mortgage.
• Enter New Loan Term – Choose how long you would like to pay back your loan. i.e. 15, 20 or 30 years.
• Enter Refinance Costs – Enter how much you think you would pay in closing costs, lender fees etc.
• Click Calculate – This will give you an estimate of how much your new monthly payments would be, how much difference there would be in your payments and how long it would take to reach break even.

Look at the results and decide if you would save enough to make it worth refinancing. You can alter the interest rate, loan term and fees to see how it would affect you.

Refinance Calculator Formula

To calculate a refinance you will typically want to work out how much your current monthly payments would be and how much your new monthly payments would be.

Monthly Mortgage Payments

The standard formula to calculate monthly payments on a fixed rate mortgage is:

[

M=P×r(1+r) n / (1+r) n - 1

]

Where:

M = Monthly principal and interest payments

P = Principal loan amount

r = Monthly interest rate (Annual rate / 12 / 100)

n = Number of monthly payments

Monthly Savings

Monthly Savings = Current Monthly Payment - New Monthly Payment

Break Even Period

Break Even Period = Total Refinance Costs / Monthly Savings

Total Refinance Costs

Total Refinance Costs = Closing Costs + Lender Fees + Other applicable fees

Example

Imagine you currently have a mortgage with a remaining loan amount of $300,000 and you want to refinance to get a lower interest rate.

Your current and new mortgage details are:

Item Current Mortgage New Mortgage

Loan Amount $300,000 $300,000

Interest Rate 7% 6%

Loan Term 25 Years 25 Years

Monthly Payment $2,120.41 $1,933.28

Step 1 – Current Monthly Payment

Using the formula above your current monthly payments would be $300,000 mortgage balance, a 7% annual interest rate, and 25 years remaining, the estimated monthly payment is approximately $2,120.41.

Step 2 – New Monthly Payment

With the new interest rate of 6% and the same repayment term of 25 years your new estimated monthly payments would be $1,933.28.

Step 3 – Monthly Savings

Monthly Savings = $2,120.41 − $1,933.28

Monthly Savings = $187.13

Step 4 – Break Even Period

Assuming the total cost to refinance was $5,000.

Break Even Period = $5,000 ÷ $187.13

Break Even Period = ~27 months.

You would save around $187.13 per month. It would take around 27 months to recover your $5,000 on the total cost to refinance.

If you plan on staying in the property for longer than the break even period then it may be worth considering refinancing. However, it is important to look at the total interest costs and if your loan amount has changed.

Refinance Calculator Results

After entering your mortgage details you will receive some useful information.

• Current Monthly Payment – This is an estimate of your monthly payments based on your current loan amount, interest rate and remaining term.
• New Monthly Payment – An estimate of how much you would pay monthly on your new mortgage.
• Monthly Savings – This shows how much you would save by having a new mortgage. If this number is positive it means your estimated monthly payments would be lower.
• Total Refinance Costs – This is an estimate of how much it would cost to get a new mortgage.
• Break Even Period – Shows how many months it would take for you to save enough in your monthly payments to cover the cost of refinancing.
• Remaining Loan Amount – This is how much principal you still owe on your current mortgage or new loan.

Having a lower monthly payment does not mean you will have lower borrowing costs. Extending the repayment term of your mortgage may mean you pay more in total interest.

Factors That Affect Refinancing

There are a few factors to consider when looking at refinancing your mortgage.

Current Interest Rate

The interest rate you currently have will play an important part in how much you could save. If you can get a much lower rate this could lower your monthly payments and total interest.

New Interest Rate

The interest rate you get from your new lender will directly affect your future payments. This can be influenced by your credit score, financial situation, type of loan and market.

Loan Amount

The higher the amount you owe on your mortgage the more you could save by refinancing at a lower interest rate.

Loan Term

By choosing a shorter term such as 15 years instead of 30 years you may have higher monthly payments but pay less in total interest. By extending the loan term you may have lower monthly payments but pay more in total.

Closing Costs

You may have to pay some closing costs when refinancing such as origination fees, appraisal fees, title services, recording fees and other lender fees. This will affect your break even period.

Credit Score

Your credit score can affect how much you can borrow and what interest rates you can get. A better credit score can help you get more favourable rates.

Home Equity

This is the difference between how much your home is worth and how much you owe. This can affect your eligibility to refinance.

How Long You Will Stay

If you plan on selling your home soon after refinancing you may not have enough time to save enough to cover the initial costs.

Advantages Of A Refinance Calculator

There are many advantages to using a Refinance Calculator.

Calculate Monthly Savings

You can compare your current mortgage payments to your new loan to see how much you would save.

Compare Interest Rates

You can see how different interest rates would affect your mortgage.

Break Even Period

Calculate how long it would take to save enough to cover the cost of refinancing.

Compare Loan Terms

You can compare the different loan terms such as 15, 20 or 30 years to find a suitable repayment term.

Refinance Costs

You can calculate how much it would cost to refinance by adding in the closing costs and lender fees.

Plan For Future Goals

Refinancing can help you save on interest, pay off your mortgage quicker and improve your monthly cashflow.

Make Informed Decisions

By comparing different scenarios you can be prepared for conversations with your mortgage lenders.

Accuracy

This calculator uses the information you have entered to give you an estimate of how much you would save. It generally assumes you will have a fixed interest rate and equal monthly payments.

However there are a few reasons why this may differ:

It may not include any property taxes, home insurance, HOA fees or other escrow costs.

The closing costs can vary depending on the lender, location, loan amount and details.

The interest rates and loan terms will depend on your credit, income, home equity and lender.

Some refinancing options may include discount points, pre-paid interest or extra fees.

Cash-out refinancing will increase your new loan amount as you are borrowing against your available equity.

Extending your mortgage term may lower your monthly payments but increase your total interest.

Adjustable rate mortgages may have varying interest rates and payments.

The break even calculation is an estimate and does not automatically include tax, lost investment opportunities or changes in property value.

This should be used as a planning tool. When considering refinancing compare the official Loan Estimates from a few lenders.

Frequently Asked Questions

What Is Refinancing?

Refinancing your mortgage is when you replace your current home loan with a new mortgage. Many homeowners will refinance to get a better interest rate, change the term of their loan, lower their monthly payments, change the type of loan or release some equity.

When Is The Best Time To Refinance?

The best time to refinance depends on the interest rates available, your current mortgage details, credit score, refinancing costs and how long you plan to stay in your home. It may be beneficial to refinance if you can save more than you would pay.

How Much Can I Save?

This depends on how much you have left to pay, your current interest rate, new interest rate and loan term. Using a Refinance Calculator can help compare your current and new monthly payments to see how much difference there would be.

What Is Break Even?

Break even is how long it would take to save enough in your monthly payments to cover the cost to refinance. For example, if it costs you $4,000 and you save $200 a month to refinance your estimated break even period would be 20 months.

Will Refinancing My Mortgage Affect My Credit Score?

Applying for a new mortgage can cause a hard credit check which will affect your credit score. Refinancing will also create a new loan and close your current mortgage. This can depend on your credit history.

Can I Refinance Without Any Closing Costs?

Some lenders offer refinancing with no closing costs. However this may come with a higher interest rate or some costs added to the loan amount. Be sure to look at the full loan details.

Is Refinancing Worth It With A Low Mortgage Balance?

It could still be beneficial but you may not save as much. Compare how much you would save each month, how much it costs to refinance, how much you have left to pay and break even period.