Refinancing a loan, often referred to as a "refi," involves replacing your existing loan with a new one. The primary goals of refinancing are typically to secure a lower interest rate, change the loan term, or access cash through a cash-out refinance. A "free refi" generally refers to a refinance with minimal or no upfront closing costs, though it's crucial to understand all associated expenses. This calculator helps you evaluate the potential financial impact of refinancing, focusing on how changes in loan amount, interest rate, term, and associated costs affect your long-term savings and monthly payments.
How the Refinance Calculator Works
This calculator helps you compare your current loan situation (implicitly, as it focuses on the new loan's terms and costs) with the proposed new loan. It calculates the total cost of the new loan, including interest and refinance fees, and then determines the potential savings or additional costs compared to the initial state.
Current Loan Balance: The outstanding amount on your existing loan. This is for informational context and to understand the principal being considered for the new loan.
New Loan Amount: The total principal you will borrow with the new loan. This might be the same as your current balance, or it could include additional funds (cash-out refinance) or be slightly different due to rolled-in costs.
New Annual Interest Rate: The yearly interest rate offered on the new loan. A lower rate is a key driver for refinancing.
New Loan Term (Years): The duration over which you will repay the new loan. Shorter terms usually mean higher monthly payments but less interest paid overall. Longer terms mean lower monthly payments but more interest paid over time.
Refinance Costs: This includes all fees associated with obtaining the new loan, such as appraisal fees, origination fees, title insurance, recording fees, etc. Sometimes these are rolled into the loan amount itself.
The Calculation Logic
The calculator performs the following key calculations:
Monthly Payment for New Loan: Using the standard mortgage payment formula (which this calculator implicitly uses to determine total payments), we calculate the estimated monthly principal and interest (P&I) payment for the new loan. The formula for monthly payment (M) is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
P = New Loan Amount (Principal)
i = Monthly Interest Rate (Annual Rate / 12)
n = Total Number of Payments (New Loan Term in Years * 12)
Total Paid Over New Loan Term: This is calculated by multiplying the Monthly Payment by the total number of payments (n).
Total Paid = Monthly Payment * n
Total Cost of New Loan: This includes the total amount paid over the life of the loan plus any upfront refinance costs that were not rolled into the loan amount.
Total Cost = Total Paid + Refinance Costs
Net Benefit/Cost: This compares the total cost of the new loan against the principal amount of the new loan. The value represents the total interest paid plus costs. A positive value indicates the total interest and fees paid.
Net Outcome = Total Cost - New Loan Amount
The result highlights the total financial outlay for the new loan, which helps borrowers understand the true cost beyond just the monthly payment. Comparing this to the total interest and remaining term of their *current* loan (which isn't directly input but is the basis for the decision) is key. For instance, if refinancing costs $5,000 and saves you $10,000 in interest over the new term, the net benefit is $5,000.
When to Consider Refinancing
Falling Interest Rates: When market interest rates drop significantly below your current loan's rate.
Improved Credit Score: If your credit has improved, you may qualify for a better rate than you had initially.
Changing Financial Goals: To shorten or lengthen the loan term, switch from an adjustable-rate to a fixed-rate mortgage (or vice versa), or to pull cash out for renovations, debt consolidation, or investments.
Eliminating Private Mortgage Insurance (PMI): If your home equity has increased sufficiently.
Important Considerations
While a "free refi" sounds appealing, always look at the "big picture." Consider:
Closing Costs: Even if advertised as "no cost," some fees might be rolled into the loan principal, increasing your loan amount and total interest paid.
Break-Even Point: How long will it take for the monthly savings to offset the refinance costs?
Loan Term Reset: Refinancing to a new 30-year term, even with a lower rate, might mean paying more interest overall than sticking with your current loan if you are already part-way through.
Market Conditions: Assess current economic trends and forecasts.
function calculateRefi() {
var currentLoanBalance = parseFloat(document.getElementById("currentLoanBalance").value);
var newLoanAmount = parseFloat(document.getElementById("newLoanAmount").value);
var newInterestRate = parseFloat(document.getElementById("newInterestRate").value);
var newLoanTerm = parseFloat(document.getElementById("newLoanTerm").value);
var refiCosts = parseFloat(document.getElementById("refiCosts").value);
var resultDiv = document.getElementById("result");
resultDiv.style.display = 'block'; // Make sure the result div is visible
if (isNaN(currentLoanBalance) || isNaN(newLoanAmount) || isNaN(newInterestRate) || isNaN(newLoanTerm) || isNaN(refiCosts)) {
resultDiv.textContent = "Please enter valid numbers for all fields.";
resultDiv.style.backgroundColor = '#dc3545'; // Red for error
return;
}
if (newInterestRate < 0 || newLoanTerm <= 0 || newLoanAmount <= 0 || refiCosts 0) {
monthlyPayment = newLoanAmount * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments)) / (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1);
} else {
// Handle case of 0% interest rate
monthlyPayment = newLoanAmount / numberOfPayments;
}
// Calculate total amount paid over the life of the loan
var totalPaidOnLoan = monthlyPayment * numberOfPayments;
// Calculate total cost of the new loan (including refinance costs)
var totalCostOfNewLoan = totalPaidOnLoan + refiCosts;
// Calculate the net outcome (total cost minus the principal of the new loan)
// This represents the total interest paid plus refinance costs.
var netOutcome = totalCostOfNewLoan – newLoanAmount;
// Format currency values
var formattedNewLoanAmount = newLoanAmount.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
var formattedRefiCosts = refiCosts.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
var formattedMonthlyPayment = monthlyPayment.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
var formattedTotalPaidOnLoan = totalPaidOnLoan.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
var formattedTotalCostOfNewLoan = totalCostOfNewLoan.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
var formattedNetOutcome = netOutcome.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
resultDiv.innerHTML = `
Estimated Refinance Outcome
New Loan Amount: ${formattedNewLoanAmount}
Refinance Costs: ${formattedRefiCosts}
Estimated Monthly Payment (P&I): ${formattedMonthlyPayment}
Total Paid Over ${newLoanTerm} Years: ${formattedTotalPaidOnLoan}
Total Cost of New Loan: ${formattedTotalCostOfNewLoan}Net Cost (Interest + Fees): ${formattedNetOutcome}
`;
resultDiv.style.backgroundColor = 'var(–success-green)'; // Green for result
}