How to Use the Refinance Calculator Calculator
Deciding whether to refinance your mortgage or auto loan is a significant financial move. This refinance calculator calculator helps you analyze if the math makes sense for your specific situation. By comparing your current loan details against a potential new loan, you can see exactly how much you might save each month and over the life of the loan.
To get the most accurate results, you will need your most recent mortgage statement to find your exact remaining balance and interest rate.
- Remaining Balance
- The current amount you still owe on your existing loan.
- Current Interest Rate
- The annual interest rate (APR) you are currently paying.
- Refinance Costs
- Include all closing costs, appraisal fees, and lender charges associated with the new loan.
How Refinancing Works
When you refinance, you are essentially taking out a brand new loan to pay off your old one. The primary goal is usually to lower your interest rate, shorten your loan term, or tap into your home's equity. The refinance calculator calculator uses the standard amortization formula to determine your new payment:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
- M: Monthly payment
- P: Principal loan amount (includes closing costs if rolled in)
- i: Monthly interest rate (Annual Rate / 12)
- n: Total number of months (Term Years × 12)
The Break-Even Point
One of the most critical metrics provided by the refinance calculator calculator is the "Break-Even Period." This is the number of months it will take for your monthly savings to cover the total cost of the refinance. If you plan to sell your home or pay off the loan before reaching this point, refinancing may actually cost you more money than it saves.
Real-World Refinance Example
Scenario: Imagine you have a mortgage with $250,000 remaining. Your current rate is 6.5%, but you qualify for a new rate of 4.5%.
Step-by-Step Calculation:
- Current Payment: Approximately $1,689
- New Payment (at 4.5% for 30 years): Approximately $1,266
- Monthly Savings: $423
- Refinance Costs: $4,500
- Break-Even: $4,500 / $423 = 10.6 Months
In this example, if you stay in the home for more than 11 months, the refinance pays for itself and starts putting $423 back in your pocket every single month.
Common Questions
Is it worth refinancing for 1% lower?
Generally, a 1% drop in interest rate is considered the "rule of thumb" for a worthwhile refinance. However, with the refinance calculator calculator, you can see that even a 0.5% drop can be beneficial if your loan balance is high or if your closing costs are low.
What are "Points" in refinancing?
Points are optional fees paid to the lender at closing to "buy down" your interest rate. One point typically costs 1% of the loan amount and reduces your rate by roughly 0.25%. Use our calculator to see if the upfront cost of points is justified by the long-term monthly savings.
Can I refinance with no closing costs?
Some lenders offer "no-cost" refinances, but this is usually a misnomer. The lender either rolls the costs into the principal loan balance or charges a slightly higher interest rate to cover the fees. You can use the "Include closing costs in balance" checkbox in our refinance calculator calculator to see how this affects your long-term interest paid.