Refinancing your mortgage or loan can be a strategic financial move to lower your monthly payments, reduce your interest rate, or tap into your home's equity. However, refinancing isn't free. It involves various closing costs and fees that need to be considered to determine if the long-term benefits outweigh the upfront expenses. This calculator helps you estimate these costs and understand the potential savings and the time it takes to recoup your investment.
How the Calculator Works
The calculator estimates your total upfront costs for refinancing and then compares your old loan's monthly payment to the new one to determine potential monthly savings. It also calculates the break-even point – the number of months it will take for your savings to cover the refinancing costs.
1. Total Refinance Costs Calculation:
This is the sum of all fees and expenses associated with obtaining your new loan. It includes:
Appraisal Fee: Cost of appraising the property's value.
Title Insurance: Protects the lender and you against title defects.
Origination Fee: A fee charged by the lender for processing the loan. Often expressed as a percentage of the loan amount.
Recording Fees: Fees charged by local government to record the new mortgage.
Other Fees: Miscellaneous costs like credit report fees, attorney fees, etc.
The formula used is:
Total Costs = Appraisal Fee + Title Insurance + (New Loan Amount * Origination Fee %) + Recording Fees + Other Fees
2. Monthly Payment Calculation:
The calculator uses the standardloan amortization formulato determine the monthly principal and interest (P&I) payment for both the original and the new loan.
The monthly payment (M) formula is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
P = Principal loan amount
i = Monthly interest rate (Annual rate / 12)
n = Total number of payments (Loan term in months)
3. Monthly Payment Savings:
This is the difference between the calculated monthly payments of your old loan and your new loan.
Monthly Savings = Old Monthly Payment - New Monthly Payment
4. Break-Even Point Calculation:
This tells you how long it will take for your monthly savings to offset the total refinance costs.
Break-Even Point (Months) = Total Refinance Costs / Monthly Savings
If monthly savings are zero or negative, the break-even point is effectively infinite (or never reached).
5. Total Interest Saved Calculation:
This estimates the total interest paid over the life of the original loan compared to the new loan.
Total Interest Saved = (Original Monthly Payment * Original Loan Term) - (New Monthly Payment * New Loan Term) - Total Refinance Costs
Note: This calculation assumes the original loan's total payments are calculated for its full term, even if there's remaining balance. A more precise calculation would involve remaining balance of the original loan. However, for comparing the benefit of a refinance, this simplified approach is often used.
When to Consider Refinancing
You should consider refinancing if:
Interest Rates Have Dropped: A significant decrease in market interest rates can lead to substantial savings.
Your Credit Score Has Improved: A better credit score may qualify you for lower interest rates.
You Need to Lower Monthly Payments: Refinancing to a lower rate or a longer term can reduce your monthly burden.
You Want to Convert Equity to Cash: A cash-out refinance allows you to borrow more than your current loan balance.
Always compare the total refinance costs against the projected savings to ensure refinancing makes financial sense for your situation. Use this calculator as a guide to estimate these figures.
function calculateLoanPayment(principal, annualRate, termMonths) {
if (principal <= 0 || annualRate < 0 || termMonths 0) {
breakEvenMonths = totalRefinanceCosts / monthlySavings;
}
// Calculate total interest paid for original and new loan
var totalInterestPaidOriginal = (originalMonthlyPayment * loanTermMonths) – originalLoanAmount;
var totalInterestPaidNew = (newMonthlyPayment * loanTermMonths) – newLoanAmount;
// Refined total interest saved calculation: interest on new loan vs. remaining interest on old loan
// To do this accurately, we'd need the remaining balance on the old loan.
// For simplicity, comparing total interest paid over the *same* term of the new loan.
// A more precise calculation would be needed for exact total interest savings if the term differs or is not fully paid.
// This calculation shows the difference in interest paid over the new loan term if the original loan were paid off.
// To simplify for this calculator, we will compare total interest paid on original vs new loan over their respective terms,
// assuming original loan amount is paid fully over its term.
var totalInterestSavedCalc = totalInterestPaidOriginal – totalInterestPaidNew;
// If the new loan amount is less, and rates are lower, interest saved will be positive.
// If costs are high and savings are minimal, this could be negative.
// We will subtract refinance costs from this interest saving for a true net benefit.
totalInterestSaved = totalInterestSavedCalc – totalRefinanceCosts;
document.getElementById("totalCostResult").innerHTML = "Total Refinance Costs: " + formatCurrency(totalRefinanceCosts);
document.getElementById("monthlySavings").innerHTML = "Monthly Payment Savings: " + formatCurrency(monthlySavings);
if (breakEvenMonths > 0) {
document.getElementById("breakEvenResult").innerHTML = "Break-Even Point (Months): " + breakEvenMonths.toFixed(1);
} else {
document.getElementById("breakEvenResult").innerHTML = "Break-Even Point (Months): N/A (No Savings)";
}
document.getElementById("totalInterestSaved").innerHTML = "Net Benefit (Interest Savings – Costs): " + formatCurrency(totalInterestSaved);
}