Refinancing your loan (often a mortgage, but can apply to other debts like auto loans or student loans) involves replacing your existing loan with a new one. The primary goals of refinancing are typically to:
Lower your monthly payments: By securing a lower interest rate or extending the loan term.
Reduce the total interest paid over the life of the loan: Especially by securing a significantly lower interest rate.
Access home equity: Through a cash-out refinance.
Change the loan term: Shorten it to pay off debt faster or lengthen it to reduce monthly payments.
How the Calculator Works
This calculator helps you estimate the potential change in your monthly payment and savings after refinancing. It compares your current loan's monthly payment to a projected payment for the new loan.
The calculation uses the standard Amortization Formula for monthly payments (M):
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M = Monthly Payment
P = Principal Loan Amount (the balance you are refinancing)
i = Monthly Interest Rate (Annual Rate / 12)
n = Total Number of Payments (Loan Term in Years * 12)
The calculator first determines the monthly payment for your current loan based on its balance, interest rate, and term. Then, it calculates the projected monthly payment for the new loan, considering the new interest rate, new loan term, and incorporating the closing costs into the new principal amount. Finally, it subtracts the new monthly payment from the old monthly payment to show your potential monthly savings.
Important Considerations:
Closing Costs: These are fees associated with obtaining a new loan. They are added to the new loan balance in this calculation, increasing the principal of the new loan.
Break-Even Point: While this calculator shows monthly savings, it doesn't calculate the break-even point (how long it takes for your savings to recoup the closing costs). You may want to consider this separately.
Total Interest Saved: A lower interest rate can lead to significant savings over the life of the loan, even if the monthly payment reduction is modest.
Loan Term Changes: Extending your loan term might lower your monthly payment but increase the total interest paid over time. Shortening it can do the opposite.
Use this tool as a guide to understand the potential financial impact of refinancing. Always consult with a financial advisor or lender for personalized advice.
function calculateMonthlyPayment(principal, annualRate, termInYears) {
var monthlyRate = annualRate / 100 / 12;
var numberOfPayments = termInYears * 12;
if (monthlyRate === 0) {
return principal / numberOfPayments;
}
var numerator = principal * monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments);
var denominator = Math.pow(1 + monthlyRate, numberOfPayments) – 1;
if (denominator === 0) {
return Infinity; // Avoid division by zero
}
return numerator / denominator;
}
function calculateRefinance() {
var currentLoanBalance = parseFloat(document.getElementById("currentLoanBalance").value);
var currentInterestRate = parseFloat(document.getElementById("currentInterestRate").value);
var currentLoanTerm = parseFloat(document.getElementById("currentLoanTerm").value);
var newInterestRate = parseFloat(document.getElementById("newInterestRate").value);
var newLoanTerm = parseFloat(document.getElementById("newLoanTerm").value);
var closingCosts = parseFloat(document.getElementById("closingCosts").value);
var messageElement = document.getElementById("message");
var resultValueElement = document.getElementById("result-value");
// Clear previous messages
messageElement.innerText = "";
resultValueElement.innerText = "$0.00";
// Input validation
if (isNaN(currentLoanBalance) || currentLoanBalance <= 0) {
messageElement.innerText = "Please enter a valid current loan balance.";
return;
}
if (isNaN(currentInterestRate) || currentInterestRate < 0) {
messageElement.innerText = "Please enter a valid current annual interest rate.";
return;
}
if (isNaN(currentLoanTerm) || currentLoanTerm <= 0) {
messageElement.innerText = "Please enter a valid current loan term in years.";
return;
}
if (isNaN(newInterestRate) || newInterestRate < 0) {
messageElement.innerText = "Please enter a valid new annual interest rate.";
return;
}
if (isNaN(newLoanTerm) || newLoanTerm <= 0) {
messageElement.innerText = "Please enter a valid new loan term in years.";
return;
}
if (isNaN(closingCosts) || closingCosts = 0) {
resultValueElement.innerText = "$" + monthlySavings.toFixed(2);
messageElement.innerText = ""; // Clear any previous error messages
} else {
// If new payment is higher, indicate that
resultValueElement.innerText = "$" + Math.abs(monthlySavings).toFixed(2);
messageElement.innerText = "Your new estimated payment is higher than your current payment.";
}
}