Mortgage refinancing is the process of replacing your existing home loan with a new one. Homeowners typically refinance to take advantage of lower interest rates, change their loan term, switch loan types (e.g., from an adjustable-rate to a fixed-rate mortgage), or to tap into their home's equity.
This calculator helps you estimate the potential savings you could achieve by refinancing your mortgage. It compares the total cost of your current loan with the total cost of a new, refinanced loan, taking into account closing costs.
How the Calculation Works
The calculator uses the standard mortgage payment formula to determine the monthly payment and total interest paid for both your current loan and the proposed new loan.
Monthly Payment Formula (M):
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
P = Principal Loan Amount (Current Loan Balance or New Loan Amount)
i = Monthly Interest Rate (Annual Interest Rate / 12)
n = Total Number of Payments (Loan Term in Years * 12)
Steps:
Calculate the monthly payment for the current loan using its balance, interest rate, and remaining term.
Calculate the total amount paid over the remaining term of the current loan (Monthly Payment * Number of Remaining Payments).
Calculate the monthly payment for the new, refinanced loan using the new loan balance (which is the same as the current balance), the new interest rate, and the new loan term.
Calculate the total amount paid over the term of the new loan (New Monthly Payment * Number of New Payments).
Calculate the total cost of the new loan including refinancing costs: (Total New Loan Payments) + (Refinancing Costs).
Calculate the savings: (Total Current Loan Payments) – (Total New Loan Cost).
Key Factors to Consider:
Interest Rate Drop: Even a small decrease in your interest rate can lead to significant savings over time, especially on large loan balances.
Loan Term: Refinancing to a longer term may lower your monthly payments but increase the total interest paid over the life of the loan. Refinancing to a shorter term will increase monthly payments but reduce total interest paid.
Refinancing Costs (Closing Costs): These can include appraisal fees, origination fees, title insurance, etc. You need to ensure that the total savings from refinancing outweigh these upfront costs. A common rule of thumb is the "break-even point" – how many months it takes for your monthly savings to recoup the closing costs.
Market Conditions: Interest rates fluctuate based on economic factors. Refinancing is most beneficial when current rates are lower than your existing mortgage rate.
Disclaimer: This calculator provides an estimate for informational purposes only. Actual savings may vary based on your specific loan terms, lender fees, and market conditions. Consult with a mortgage professional for personalized advice.
function calculateMonthlyPayment(principal, annualRate, termYears) {
if (principal <= 0 || annualRate < 0 || termYears <= 0) {
return 0;
}
var monthlyRate = annualRate / 100 / 12;
var numberOfPayments = termYears * 12;
if (monthlyRate === 0) {
return principal / numberOfPayments;
}
var numerator = monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments);
var denominator = Math.pow(1 + monthlyRate, numberOfPayments) – 1;
return principal * (numerator / denominator);
}
function calculateTotalPayments(monthlyPayment, termYears) {
if (monthlyPayment <= 0 || termYears <= 0) {
return 0;
}
var numberOfPayments = termYears * 12;
return monthlyPayment * numberOfPayments;
}
function calculateRefinanceSavings() {
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 refinanceCosts = parseFloat(document.getElementById("refinanceCosts").value);
var savingsAmountElement = document.getElementById("savingsAmount");
// Input validation
if (isNaN(currentLoanBalance) || currentLoanBalance <= 0 ||
isNaN(currentInterestRate) || currentInterestRate < 0 ||
isNaN(currentLoanTerm) || currentLoanTerm <= 0 ||
isNaN(newInterestRate) || newInterestRate < 0 ||
isNaN(newLoanTerm) || newLoanTerm <= 0 ||
isNaN(refinanceCosts) || refinanceCosts 0) {
savingsAmountElement.innerText = "$" + savings.toFixed(2);
} else {
savingsAmountElement.innerText = "$" + savings.toFixed(2) + " (Consider if refinancing is beneficial)";
}
}
// Initial calculation on load if fields are pre-filled (e.g., from browser memory)
window.onload = function() {
calculateRefinanceSavings();
};