Mortgage Refinance Savings Calculator
Calculate your potential monthly savings and break-even point instantly.
How to Use the Mortgage Refinance Savings Calculator
Deciding whether to refinance your mortgage involves more than just looking at the interest rate. You must consider the closing costs, the new loan term, and how long you plan to stay in the home. This calculator helps you visualize the financial impact of a refinance by comparing your current Principal and Interest (P&I) payment against a potential new one.
Key Factors in Refinancing Decisions
1. The Break-Even Point: This is perhaps the most critical metric. It represents the number of months it will take for your monthly savings to cover the upfront costs of the refinance (closing costs). If you plan to move before reaching this point, refinancing may actually lose you money.
2. Closing Costs: Typically ranging from 2% to 5% of the loan amount, these include appraisal fees, title insurance, and origination fees. Even a "no-cost" refinance usually has a higher interest rate to cover these expenses.
3. Loan Term Reset: Be careful when refinancing into a new 30-year term if you have already paid down 10 years of your original mortgage. While your monthly payment will drop, you are extending your debt obligation, which might result in paying more interest over the long run.
Example Calculation
Let's say you owe $300,000 on your current home. Your current payment is $1,800. You find a new rate of 6.5% for a 30-year term with $5,000 in closing costs.
- New Payment: ~$1,896 (In this case, the payment increases, suggesting a refinance might not be ideal unless the current rate was significantly higher).
- If the new rate was 5.5%, the new payment would be ~$1,703.
- Monthly Savings: $97.
- Break-Even: $5,000 / $97 = ~51 months.
Frequently Asked Questions (FAQ)
Is a 1% drop in interest rate enough to refinance?
Historically, the "1% rule" was the gold standard. However, with modern low-cost refinance options, even a 0.5% to 0.75% drop can be worth it if you plan to stay in the home for several years.
What are common refinance closing costs?
Expect to pay for a new home appraisal ($500-$800), credit report fees, loan origination fees (1% of loan value), and title search/insurance fees.
Can I refinance with bad credit?
While possible through FHA Streamline or VA Interest Rate Reduction Refinance Loans (IRRRL), you generally need a score above 620 to access the best conventional market rates.