How to use our home loan refinance calculator
With our mortgage refi calculator, you’ll input some information about both your current loan and potential new loan. The calculator then shows how much you could save or how much extra you might spend with your new monthly payment and new total payment for the life of the loan.
Have the following information handy to get more accurate calculator results:
Your existing loan balance, interest rate, and current monthly payment
Your new loan interest rate, loan term, and an estimate of the closing costs (which can range anywhere from 0.5% to 5% of the refinance amount depending on the lender)
Understanding the break-even point
When refinancing your home, it’s important to consider your break-even point. This is the point in time at which the up-front cost of refinancing is matched by your accumulating, long-term savings. In other words, it’s when you really start to benefit and save money.
Calculating your mortgage break-even point is essential to determine if refinancing makes good financial sense based on your personal goals. This is especially so if you plan to sell your home in the next few years. If you sell before your break-even point, you are likely to end up losing money on the refinance. If, instead, you plan to stay in your home for the long term, refinancing might be a smart financial decision particularly in a low-rate environment.
When is the right time to refinance?
Successful refinancing often involves a bit of timing and good planning. A rule of thumb is that if interest rates have dropped by at least 0.75% since you bought your home and financed your current loan, then refinancing might be worthwhile.
You also want to consider your broader financial situation. Lenders look at their borrowers’ credit score and debt-to-income ratio when deciding what interest rates to offer. If your financial strength has significantly improved since you bought your home, it may be the right time to consider a refinance.
Common reasons to refinance
You’re looking to save money on your loan. A lower interest rate means you may pay less on your monthly mortgage payment and possibly pay less for the total life of the loan.
You have an adjustable-rate mortgage (ARM), and its initial term is close to expiring. Once the initial term ends, the lender can adjust your rate annually, up to the interest rate caps set forth in your original loan agreement Refinancing is an opportunity to lock in a stable rate with a fixed-rate mortgage or you could refinance an ARM into another ARM.
You need cash for high-interest debt consolidation or to help pay for home improvements. Through a cash-out refinance, you can leverage your home’s equity to get cash.
You have an FHA loan and are paying for private mortgage insurance (PMI), and you have reached 20% home equity. An FHA loan lender won’t automatically stop charging you for PMI once you’ve achieved 20% equity (unlike with many other loans). Consider refinancing to rid yourself of this expense.
You need to remove a borrower from the mortgage. If you’ve divorced, you may need to refinance to remove your spouse from your mortgage. Note that the lender will base the refinance mortgage on your own credit history, DTI ratio, and other lending factors.
Frequently Asked Questions when making a calculated refinance decision
Is it worth refinancing my mortgage to save $100 – $300 per month?
Whether a refinance is worthwhile depends largely on your financial needs and plans. If you sell your house and move before you reach your new loan’s break-even point, then refinancing is likely not a good idea. If, however, you will stay in your home long-term and use the savings the payoff other high-interest debt, put more towards retirement savings and build up an emergency fund then a refinance may make good sense.
The break-even point is the moment when the amount of money you spend to refinance matches the amount of money you save each month.
What is the formula for refinancing?
To determine if refinancing makes sense, you’ll want to calculate your mortgage break-even point. This is the point at which your accumulating, long-term refinance savings will outweigh the upfront cost.
Here’s a simplified way to calculate the break-even point for a mortgage refinance:
Determine your monthly savings (principal and interest) due to refinancing.
Add up the closing costs for your refinance loan.
Divide the closing costs by your monthly savings. The result is the number of months that will elapse before your break-even point.
This information is provided for general informational purposes. All transactions are subject to credit approval. Contact a loan officer for a custom quote.