Mortgage Refinance Savings Calculator
Determine if refinancing your home loan will save you money and find your break-even point.
Understanding Mortgage Refinancing
Refinancing your mortgage involves replacing your current home loan with a new one, typically to take advantage of lower interest rates or to change the loan term. While the goal is usually to save money, it is essential to calculate the "Break-Even Point"—the moment where your monthly savings finally outweigh the upfront closing costs.
How to Use This Calculator
- Current Loan Balance: Enter the remaining amount you owe on your mortgage.
- Current Interest Rate: The annual percentage rate you are currently paying.
- New Interest Rate: The interest rate offered by the lender for the new loan.
- Remaining Years: How many years you have left before your current mortgage is paid off.
- Closing Costs: These typically include appraisal fees, title insurance, and lender origination fees, often ranging from 2% to 5% of the loan amount.
Refinance Example: Is it worth it?
Imagine you have a $300,000 balance on a mortgage with a 6.5% interest rate and 20 years remaining. Your current monthly payment (Principal & Interest) is approximately $2,236.
If you refinance into a new 20-year loan at 5.0%, your new monthly payment would drop to roughly $1,980. This saves you $256 per month. If the closing costs for this refinance are $6,000, you would divide $6,000 by $256 to find that it takes about 23.4 months to break even. If you plan to stay in the home for more than 2 years, refinancing is likely a smart financial move.
When Should You Refinance?
Most financial experts suggest that if you can lower your interest rate by 0.75% to 1% and plan to stay in your home long enough to reach the break-even point, refinancing is highly beneficial. Additionally, refinancing can be used to switch from an Adjustable-Rate Mortgage (ARM) to a Fixed-Rate Mortgage for long-term stability.