Refinancing your loan (most commonly a mortgage, but can also apply to auto loans, student loans, etc.) involves replacing your existing loan with a new one. The primary motivations for refinancing are typically to secure a lower interest rate, change the loan term, or access cash through a cash-out refinance. Our refinance calculator helps you estimate the potential financial benefits of such a decision, particularly focusing on interest rate reduction and loan term adjustments.
How the Refinance Calculator Works
The calculator uses standard loan amortization formulas to determine your current monthly payment and the projected monthly payment with the new loan terms. The difference between these payments represents your potential monthly savings. It also calculates the total savings over the life of the new loan and estimates the break-even point, which is the number of months it will take for your savings to recoup the closing costs associated with refinancing.
Key Metrics Explained:
Current Loan Balance ($): The outstanding principal amount on your existing loan.
Current Interest Rate (%): The annual interest rate of your current loan.
Current Loan Term (Years): The remaining duration of your existing loan.
New Interest Rate (%): The annual interest rate you expect to get with the new loan.
New Loan Term (Years): The duration of the new loan. This can be shorter to pay off faster or longer to reduce monthly payments.
Estimated Closing Costs ($): All fees and expenses incurred when obtaining the new loan (e.g., appraisal fees, title insurance, loan origination fees).
Monthly Savings ($): The difference between your current monthly payment and the new projected monthly payment. A positive value indicates you'll pay less each month.
Total Savings Over New Term ($): This is calculated by multiplying your monthly savings by the number of months in the new loan term. This shows the long-term financial benefit, *assuming you keep the loan for the full term*.
Break-Even Point (Months): This crucial metric tells you how many months of savings are needed to cover the closing costs. If Break-Even Point (Months) is less than the remaining term of your old loan or the full term of your new loan, refinancing is likely a good financial move. The formula is: Closing Costs / Monthly Savings.
When Should You Consider Refinancing?
Refinancing is generally beneficial when:
Interest Rates Have Dropped: If market interest rates have fallen significantly since you took out your original loan, you can likely secure a lower rate and save money.
Your Credit Score Has Improved: A better credit score can qualify you for lower interest rates.
You Want to Shorten Your Loan Term: Refinancing to a shorter term can help you pay off your loan faster and save on total interest paid, even if the rate isn't dramatically lower (though this will increase your monthly payment).
You Want to Lower Your Monthly Payments: Refinancing to a longer term can reduce your monthly payment, freeing up cash flow. However, be aware that you'll likely pay more interest over the life of the loan.
You Need to Consolidate Debt or Access Equity: A cash-out refinance allows you to borrow more than your current balance and use the difference for other purposes, like home improvements or debt consolidation.
Always compare the potential savings against the closing costs. If the closing costs are high, it may take a long time to recoup them, potentially negating the benefits of refinancing, especially if you plan to sell your property or pay off the loan before the break-even point. Use this calculator as a guide to make an informed decision about your financial future.
function calculateMonthlyPayment(principal, annualRate, termInYears) {
var monthlyRate = annualRate / 12 / 100;
var numberOfMonths = termInYears * 12;
if (monthlyRate === 0) {
return principal / numberOfMonths;
}
var payment = principal * (monthlyRate * Math.pow(1 + monthlyRate, numberOfMonths)) / (Math.pow(1 + monthlyRate, numberOfMonths) – 1);
return payment;
}
function calculateRefinance() {
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 closingCosts = parseFloat(document.getElementById("closingCosts").value);
var monthlySavingsElement = document.getElementById("monthlySavings");
var totalSavingsElement = document.getElementById("totalSavings");
var breakEvenElement = document.getElementById("breakEven");
// Clear previous results
monthlySavingsElement.textContent = "$0.00";
totalSavingsElement.textContent = "$0.00";
breakEvenElement.textContent = "N/A";
// Input validation
if (isNaN(currentLoanBalance) || isNaN(currentInterestRate) || isNaN(currentLoanTerm) ||
isNaN(newInterestRate) || isNaN(newLoanTerm) || isNaN(closingCosts) ||
currentLoanBalance <= 0 || currentInterestRate < 0 || currentLoanTerm <= 0 ||
newInterestRate < 0 || newLoanTerm <= 0 || closingCosts 0) {
breakEven = Math.ceil(closingCosts / monthlySavings);
} else {
monthlySavings = 0; // Don't show negative savings if new payment is higher
totalSavings = 0;
}
// Display results
monthlySavingsElement.textContent = "$" + monthlySavings.toFixed(2);
totalSavingsElement.textContent = "$" + totalSavings.toFixed(2);
breakEvenElement.textContent = (breakEven === "N/A") ? "N/A" : breakEven + " months";
}