Mortgage Refinance Savings Calculator
How Does a Mortgage Refinance Calculator Work?
A mortgage refinance calculator helps you determine if switching your current home loan for a new one is financially beneficial. It compares your existing monthly principal and interest payment against the projected payment of a new loan with current market rates. By factoring in closing costs, the calculator identifies your "break-even point"—the exact month where your accumulated savings surpass the upfront cost of refinancing.
When Should You Consider Refinancing?
Most financial experts suggest looking into a refinance if you can lower your interest rate by at least 0.75% to 1%. However, even a smaller reduction can be worth it if you plan to stay in the home for a long duration. Key reasons to refinance include:
- Lowering Monthly Payments: Directly improving your monthly cash flow.
- Shortening the Loan Term: Switching from a 30-year to a 15-year mortgage to pay off the debt faster.
- Switching Loan Types: Moving from an Adjustable-Rate Mortgage (ARM) to a stable Fixed-Rate Mortgage.
Understanding the Break-Even Point
The break-even point is critical. For example, if your refinance costs $5,000 in fees but saves you $200 per month, your break-even point is 25 months ($5,000 / $200). If you plan to sell the house in 2 years (24 months), you would actually lose money by refinancing. If you stay for 10 years, you would save over $19,000 net.
Example Calculation
Imagine you have a $300,000 balance at 6.5% interest. Your payment is roughly $1,896. If you refinance into a new 30-year loan at 4.5%, your new payment drops to $1,520. That is a monthly saving of $376. With closing costs of $5,000, you break even in just over 13 months.