Bankrate Refinance Calculator
Estimate your savings and understand your mortgage refinance options.
Refinance Details
Enter your outstanding mortgage balance.
Your current annual interest rate.
Remaining years on your current mortgage.
The estimated annual interest rate for the new loan.
The desired term for your new mortgage.
Total closing costs and fees for the refinance.
Estimated Savings
Estimated Monthly Savings
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per month
Current Monthly Payment:
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New Monthly Payment:
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Total Interest Paid (Current):
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Total Interest Paid (New):
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Break-Even Point (Months):
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How it's calculated: Savings are determined by comparing the total cost of the current loan over its remaining term versus the total cost of the refinanced loan, including fees. The break-even point indicates how many months it takes for the monthly savings to recoup the refinance fees.
Loan Amortization Comparison
Comparison of principal and interest paid over time for current vs. refinanced loan.| Year | Current Loan Balance | New Loan Balance | Total Interest Paid (Current) | Total Interest Paid (New) |
|---|
What is a Bankrate Refinance Calculator?
A Bankrate refinance calculator is a powerful online tool designed to help homeowners understand the financial implications of refinancing their existing mortgage. It allows users to input details about their current loan and potential new loan terms to estimate how much they could save on monthly payments, total interest, and how quickly they can recoup the costs associated with refinancing. This calculator serves as a crucial first step in the decision-making process for anyone considering a mortgage refinance, providing data-driven insights rather than relying on guesswork. It is particularly useful for homeowners looking to take advantage of lower interest rates, shorten their loan term, or tap into home equity.
Who should use it: Homeowners who have a mortgage and are considering refinancing should use this bankrate refinance calculator. This includes those who:
- Have seen a significant drop in market interest rates since they took out their current loan.
- Are looking to shorten their loan repayment period to build equity faster or pay off their mortgage sooner.
- Want to convert their adjustable-rate mortgage (ARM) to a fixed-rate mortgage for payment stability.
- Need to access cash from their home equity for major expenses like home improvements or debt consolidation.
Common misconceptions: A frequent misconception is that refinancing is always beneficial just because new rates are lower. However, homeowners often overlook the closing costs and fees associated with a refinance. Our bankrate refinance calculator helps address this by calculating a break-even point, showing when the savings from a lower rate will offset these upfront costs. Another misconception is that refinancing into a longer term will always lower payments; while true, it can significantly increase the total interest paid over the life of the loan, which the calculator also highlights.
Bankrate Refinance Calculator Formula and Mathematical Explanation
The core functionality of the bankrate refinance calculator relies on several key financial formulas, primarily related to loan amortization and cost comparison. Understanding these formulas helps in appreciating the accuracy and utility of the results provided by the bankrate refinance calculator.
Calculating Monthly Payments (Amortization Formula)
The standard formula to calculate the monthly payment (M) for both the current and new loans is the annuity formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
- M = Monthly Payment
- P = Principal Loan Amount (Current Loan Balance)
- i = Monthly Interest Rate (Annual Rate / 12)
- n = Total Number of Payments (Loan Term in Years * 12)
Calculating Total Interest Paid
The total interest paid over the life of a loan is calculated as:
Total Interest = (Monthly Payment * Total Number of Payments) – Principal Loan Amount
Calculating Savings
The estimated monthly savings are the difference between the current and new monthly payments:
Monthly Savings = Current Monthly Payment – New Monthly Payment
Calculating Break-Even Point
The break-even point in months is the time it takes for the accumulated monthly savings to equal the total refinance fees:
Break-Even Point (Months) = Total Refinance Fees / Monthly Savings
Variable Definitions for Bankrate Refinance Calculator:
| Variable | Meaning | Unit | Typical Range |
|---|---|---|---|
| P (Principal) | Outstanding balance of the current mortgage loan. | Currency ($) | $50,000 – $1,000,000+ |
| Annual Rate | The yearly interest rate charged on the loan. | Percentage (%) | 2% – 10%+ |
| Term (Years) | The total duration of the loan in years. | Years | 5 – 30 years |
| i (Monthly Rate) | Annual Rate divided by 12. | Decimal (e.g., 0.045 / 12) | 0.00167 – 0.00833+ |
| n (Total Payments) | Loan Term in Years multiplied by 12. | Months | 60 – 360 months |
| M (Monthly Payment) | The fixed amount paid each month towards principal and interest. | Currency ($) | Calculated |
| Fees | Costs associated with obtaining the new loan (appraisal, title, etc.). | Currency ($) | $1,000 – $10,000+ |
| Monthly Savings | Difference between old and new monthly payments. | Currency ($) | Calculated |
| Break-Even Point | Months required for savings to cover refinance costs. | Months | Calculated |
Practical Examples (Real-World Use Cases)
Let's explore how the bankrate refinance calculator can be used with practical examples to inform financial decisions regarding mortgage refinancing. These examples illustrate the power of the bankrate refinance calculator in quantifying potential benefits.
Example 1: Lowering Interest Rate for Long-Term Savings
Scenario: Sarah has a remaining balance of $300,000 on her mortgage with a 5.5% interest rate and 25 years left on her 30-year loan term. She's found a new loan offer with a 4.0% interest rate and wants to keep the same remaining term of 25 years. The estimated refinance fees are $6,000.
Inputs for Bankrate Refinance Calculator:
- Current Loan Balance: $300,000
- Current Interest Rate: 5.5%
- Current Loan Term: 25 years
- New Interest Rate: 4.0%
- New Loan Term: 25 years
- Refinance Fees: $6,000
Calculated Results:
- Current Monthly Payment: ~$1,913
- New Monthly Payment: ~$1,581
- Estimated Monthly Savings: ~$332
- Total Interest Paid (Current): ~$273,890
- Total Interest Paid (New): ~$174,340
- Total Interest Saved: ~$99,550
- Break-Even Point: ~18 months ($6,000 fees / $332 savings)
Financial Interpretation: By refinancing, Sarah could save approximately $332 per month. Although the fees are $6,000, these costs would be recouped in about 18 months. Over the remaining 25 years, she stands to save nearly $100,000 in interest, making this refinance a very attractive option for long-term financial health. This bankrate refinance calculator output clearly shows the substantial benefit.
Example 2: Shortening Loan Term to Build Equity Faster
Scenario: John owes $200,000 on his mortgage at 4.2% interest with 18 years remaining on his 30-year loan. He wants to pay it off faster and considers refinancing into a 15-year term at 3.8%. The closing costs are estimated at $4,500.
Inputs for Bankrate Refinance Calculator:
- Current Loan Balance: $200,000
- Current Interest Rate: 4.2%
- Current Loan Term: 18 years
- New Interest Rate: 3.8%
- New Loan Term: 15 years
- Refinance Fees: $4,500
Calculated Results:
- Current Monthly Payment: ~$1,351
- New Monthly Payment: ~$1,444
- Estimated Monthly Savings: -$93 (Note: Payment increases)
- Total Interest Paid (Current): ~$73,170
- Total Interest Paid (New): ~$59,720
- Total Interest Saved: ~$13,450
- Break-Even Point: Not applicable for savings (payment increased)
Financial Interpretation: In this case, while the new interest rate is lower, the shorter loan term results in a higher monthly payment ($1,444 vs $1,351). John would pay an extra $93 per month. However, by refinancing, he would pay off his mortgage 3 years sooner and save approximately $13,450 in total interest. This scenario highlights that a bankrate refinance calculator can show trade-offs; lower monthly payments aren't always the primary goal. John must decide if paying an extra $93 monthly for 15 years is worth saving over $13,000 in interest and being debt-free sooner.
How to Use This Bankrate Refinance Calculator
Using our bankrate refinance calculator is straightforward and provides valuable insights for your mortgage decisions. Follow these simple steps:
- Gather Current Loan Information: Locate your latest mortgage statement. You'll need your current outstanding loan balance, your current annual interest rate, and the remaining number of years on your loan term.
- Research New Loan Offers: Speak with lenders or use online mortgage marketplaces to get quotes for a refinance. Note down the interest rate and loan term you are considering for the new mortgage.
- Estimate Refinance Fees: Lenders typically provide a Loan Estimate detailing closing costs. Sum up all associated fees (e.g., appraisal, title insurance, origination fees, recording fees) to get your total refinance cost.
- Input Data into the Calculator: Enter the gathered information into the corresponding fields of the bankrate refinance calculator: 'Current Loan Balance', 'Current Interest Rate (%)', 'Current Loan Term (Years)', 'New Interest Rate (%)', 'New Loan Term (Years)', and 'Refinance Fees ($)'.
- Review the Results: Once you click 'Calculate Savings', the calculator will display:
- Estimated Monthly Savings: The difference between your current and new monthly payments. A positive number indicates savings.
- Current & New Monthly Payments: Direct comparison of your payment obligations.
- Total Interest Paid (Current/New): The total interest you'd pay over the respective loan terms.
- Break-Even Point (Months): The number of months it will take for your monthly savings to cover the refinance fees.
How to interpret results:
- Significant Monthly Savings & Short Break-Even Point: This usually indicates a highly beneficial refinance, especially if the new rate is substantially lower than your current one.
- Increased Monthly Payment with Lower Total Interest: This suggests refinancing to shorten your loan term. Evaluate if the long-term interest savings justify the higher monthly burden. The bankrate refinance calculator helps quantify this trade-off.
- Low or No Monthly Savings: If savings are minimal or negative, and the break-even point is long (exceeding a few years), refinancing might not be cost-effective, especially considering the effort involved.
Decision-making guidance: Consider the break-even point relative to how long you plan to stay in your home. If you plan to move or refinance again before the break-even point, the costs might outweigh the benefits. Always factor in potential changes in your financial situation and future interest rate trends. This bankrate refinance calculator is a tool, not a definitive answer; consult with a financial advisor for personalized advice.
Key Factors That Affect Bankrate Refinance Calculator Results
Several critical factors influence the outcome of a bankrate refinance calculator and the overall success of a mortgage refinance. Understanding these elements is crucial for accurate projections and informed decision-making.
- Current vs. New Interest Rates: This is the most significant driver. A lower new interest rate directly translates to lower monthly payments and less total interest paid over the life of the loan, assuming the loan term and balance remain comparable. Even a small reduction in rate can lead to substantial savings when applied to a large loan balance over many years.
- Refinance Closing Costs (Fees): These are the upfront expenses incurred when obtaining a new mortgage. They include appraisal fees, title insurance, loan origination fees, recording fees, and potentially points. Higher fees extend the break-even period, meaning it takes longer for your savings to recoup the costs. Our bankrate refinance calculator factors these directly into the break-even calculation.
- Loan Term: Choosing a shorter term (e.g., 15 years instead of 30) typically means higher monthly payments but significantly less total interest paid and faster equity building. Conversely, extending the term can lower monthly payments but increases the total interest burden. The bankrate refinance calculator allows comparison between different term options.
- Remaining Loan Balance: The larger your current balance, the greater the potential impact of interest rate changes. Refinancing a substantial balance at a lower rate yields more significant dollar savings than refinancing a smaller balance.
- Your Credit Score: Your creditworthiness directly impacts the interest rate you can secure. A higher credit score typically qualifies you for lower interest rates, making refinancing more financially advantageous. Poor credit may limit your options or lead to higher rates, potentially negating the benefits.
- Home Equity: Lenders assess your loan-to-value (LTV) ratio, which is your loan balance divided by your home's appraised value. Higher equity (lower LTV) generally leads to better refinance rates and terms. If your home value has decreased, you might have less equity, potentially affecting your eligibility or the rates offered.
- Economic Conditions and Future Rate Expectations: While the calculator focuses on current offers, the broader economic outlook matters. If interest rates are expected to fall further, waiting to refinance might yield even better terms. Conversely, if rates are expected to rise, refinancing sooner locks in current favorable rates.
Frequently Asked Questions (FAQ)
Q1: How soon after getting my current mortgage can I refinance?
There's typically no strict waiting period mandated by lenders, but it's generally advisable to wait until you've built some equity and your credit score has improved, if applicable. Some lenders may have portfolio guidelines requiring a minimum period (e.g., 6-12 months) of mortgage payments before considering a refinance.
Q2: What are "points" when refinancing?
Points are fees paid directly to the lender at closing in exchange for a reduction in the interest rate. One point costs 1% of the loan amount. The bankrate refinance calculator includes points within the 'Refinance Fees' input. Deciding whether to pay points depends on how long you plan to keep the mortgage and how much you'll save on interest versus the upfront cost.
Q3: Can I refinance to take cash out of my home equity?
Yes, you can. This is often done through a "cash-out refinance," where you borrow more than your current mortgage balance and receive the difference in cash. The calculator helps compare the new, larger loan's payment and interest costs against your current situation.
Q4: How does refinancing affect my credit score?
Applying for a refinance typically results in a hard inquiry on your credit report, which can temporarily lower your score by a few points. However, successfully managing the new, potentially lower-interest loan over time can ultimately help improve your credit score.
Q5: Is it worth refinancing if the rate drop is small?
It depends. Use the bankrate refinance calculator to check the break-even point. If the rate drop is small (e.g., 0.25%), but your loan balance is large and refinance fees are low, it might still be worthwhile. If the rate drop is minimal and fees are high, it's likely not beneficial.
Q6: What is the difference between rate-and-term refinance and cash-out refinance?
A rate-and-term refinance aims to get a lower interest rate and/or a different loan term without taking out extra cash. A cash-out refinance involves borrowing more than the current mortgage balance to receive cash, effectively tapping into your home equity. The calculator can model both scenarios.
Q7: Can I refinance an FHA loan into a conventional loan?
Yes, it's possible to refinance an FHA loan into a conventional loan, often to eliminate Private Mortgage Insurance (PMI) or secure a lower rate. You may also be able to do an FHA streamline refinance, which has fewer requirements.
Q8: What are the main limitations of a refinance calculator?
Calculators provide estimates based on the inputs provided. They don't account for all lender-specific fees, individual credit profiles affecting exact rate offers, changes in home value beyond the initial appraisal, or future interest rate fluctuations. They are best used as a preliminary estimation tool before engaging with lenders.
Related Tools and Internal Resources
- Mortgage Calculator Estimate your monthly mortgage payments based on loan amount, interest rate, and term.
- Mortgage Affordability Calculator Determine how much house you can afford based on your income and expenses.
- Mortgage Refinancing Guide A comprehensive overview of the mortgage refinancing process, benefits, and considerations.
- Loan Comparison Calculator Compare different loan offers side-by-side to see total costs and monthly payments.
- Home Equity vs. Cash-Out Refinance Understand the differences and choose the right option for accessing home equity.
- Amortization Schedule Calculator See a detailed breakdown of how your loan payments are applied to principal and interest over time.