Refinancing your mortgage can be a powerful financial strategy to lower your monthly payments, reduce the total interest paid over the life of your loan, or tap into your home's equity. This calculator helps you estimate the potential monthly savings and the breakeven point for your refinance, considering the costs involved.
How the Calculator Works:
The calculator performs a few key calculations:
Current Monthly Payment: It first calculates your estimated current monthly principal and interest payment based on your original loan terms. (Note: For simplicity, this calculator assumes you input the current remaining loan balance and the original loan details. A more advanced calculator would ask for original loan amount, original interest rate, and original term).
New Monthly Payment: It then calculates the new monthly principal and interest payment based on your current loan balance, the new interest rate, and the new loan term.
Monthly Savings: The difference between your estimated current monthly payment and the new monthly payment.
Breakeven Point: The number of months it will take for your monthly savings to offset the closing costs of the refinance.
The Math Behind the Mortgage Payment:
The standard formula for calculating a fixed-rate mortgage payment (M) is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M = Your total monthly mortgage payment (Principal & Interest)
P = The principal loan amount (the current loan balance in our calculator)
i = Your monthly interest rate (annual rate divided by 12)
n = The total number of payments over the loan's lifetime (loan term in months)
Important Note: This calculator focuses on the Principal and Interest (P&I) portion of your payment. It does not include property taxes, homeowner's insurance, or Private Mortgage Insurance (PMI), which are often part of your total monthly housing expense (escrow). Refinancing may also affect these costs.
Key Inputs Explained:
Current Loan Balance: The outstanding amount you still owe on your existing mortgage.
New Annual Interest Rate (%): The interest rate you are offered for the new refinanced loan.
New Loan Term (Months): The duration of the new loan in months. Extending the term typically lowers monthly payments but increases total interest paid. Shortening the term does the opposite.
Estimated Closing Costs ($): The total fees associated with obtaining the new loan. These can include appraisal fees, title insurance, origination fees, etc. These costs must be recouped through savings before the refinance becomes truly beneficial.
When Should You Consider Refinancing?
Refinancing makes sense in several scenarios:
Lower Interest Rates: If market interest rates have dropped significantly since you took out your original mortgage, you can lower your rate and save money.
Improve Cash Flow: If you need to lower your monthly payments to improve your budget, extending the loan term (while potentially increasing total interest) can achieve this.
Convert Equity: Cash-out refinances allow you to borrow against your home equity for major expenses like home improvements, education, or debt consolidation.
Remove PMI: If your home's value has increased and your loan balance has decreased, you might be able to refinance to remove Private Mortgage Insurance.
Always compare the estimated savings against the closing costs to determine if refinancing is financially advantageous for your specific situation.
function calculateMortgagePayment(principal, monthlyRate, termInMonths) {
var monthlyRateDecimal = parseFloat(monthlyRate) / 100 / 12;
var n = parseInt(termInMonths);
var P = parseFloat(principal);
if (isNaN(P) || isNaN(monthlyRateDecimal) || isNaN(n) || P <= 0 || monthlyRateDecimal <= 0 || n <= 0) {
return 0; // Return 0 if inputs are invalid for calculation
}
var numerator = P * (monthlyRateDecimal * Math.pow(1 + monthlyRateDecimal, n));
var denominator = Math.pow(1 + monthlyRateDecimal, n) – 1;
if (denominator === 0) return 0; // Avoid division by zero
return numerator / denominator;
}
function calculateRefinance() {
var currentLoanBalance = parseFloat(document.getElementById("currentLoanBalance").value);
var newInterestRate = parseFloat(document.getElementById("newInterestRate").value);
var loanTermMonths = parseFloat(document.getElementById("loanTermMonths").value);
var closingCosts = parseFloat(document.getElementById("closingCosts").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ''; // Clear previous results
if (isNaN(currentLoanBalance) || isNaN(newInterestRate) || isNaN(loanTermMonths) || isNaN(closingCosts) ||
currentLoanBalance <= 0 || newInterestRate <= 0 || loanTermMonths <= 0 || closingCosts 0) {
breakevenMonthsCalc = closingCosts / monthlySavings;
} else {
monthlySavings = 0; // No savings if new payment is higher or equal
breakevenMonthsCalc = Infinity; // Cannot break even if no savings
}
var formattedNewTotalInterest = (newMonthlyPayment * loanTermMonths) – currentLoanBalance;
resultDiv.innerHTML = `
Estimated Refinance Results
New Monthly P&I Payment: $${formattedNewPayment}
Total Interest Paid (New Loan): $${formattedNewTotalInterest.toFixed(2)}
Estimated Monthly Savings: $${monthlySavings.toFixed(2)} (Compared to hypothetical rate of ${hypotheticalCurrentRate.toFixed(1)}%)
Breakeven Point: ${breakevenMonthsCalc === Infinity ? 'N/A (No Monthly Savings)' : breakevenMonthsCalc.toFixed(1) + ' months'}
Note: Calculations are estimates for Principal & Interest only. Does not include taxes, insurance, or PMI. Assumes a hypothetical current rate for savings comparison due to input limitations.
`;
}