Mortgage Refinance Savings Calculator
Determine if refinancing your home loan will save you money in the long run.
How Does Mortgage Refinancing Work?
Refinancing a mortgage means replacing your existing home loan with a new one, typically with different terms. Homeowners usually do this to secure a lower interest rate, reduce their monthly payment, or change their loan duration. Using a Mortgage Refinance Savings Calculator is the first step in determining if the costs of the new loan outweigh the monthly benefits.
Key Factors in Your Refinance Calculation
- Interest Rate Differential: Even a 0.5% to 1% drop in rates can result in thousands of dollars in savings over the life of the loan.
- Closing Costs: Refinancing isn't free. You will likely pay for a new appraisal, title insurance, and lender fees, usually totaling 2% to 5% of the loan amount.
- Break-Even Point: This is the most critical metric. It tells you how many months it will take for your monthly savings to cover the initial closing costs. If you plan to move before hitting this point, refinancing may not be financially sound.
Example Calculation
Imagine you have a $300,000 balance at a 7% interest rate. Your current principal and interest payment is approximately $1,996. If you refinance into a new 30-year loan at 5.5% with $6,000 in closing costs:
- New Payment: $1,703
- Monthly Savings: $293
- Break-Even: $6,000 / $293 = 20.5 months
In this scenario, if you stay in the home for more than 21 months, the refinance pays for itself and begins saving you money every month thereafter.
When is the Best Time to Refinance?
Experts generally suggest looking into a refinance when market rates are at least 0.75% to 1% lower than your current rate. However, if you are looking to switch from an Adjustable-Rate Mortgage (ARM) to a Fixed-Rate Mortgage for stability, or if your credit score has significantly improved since you first bought the home, a refinance might be beneficial even with smaller rate changes.