Refinancing your mortgage involves replacing your current home loan with a new one, typically to take advantage of lower interest rates or better terms. This Mortgage Refinance Savings Calculator helps you determine if the long-term savings outweigh the upfront costs of closing a new loan.
When Should You Refinance?
A common rule of thumb is to refinance if you can lower your interest rate by at least 0.75% to 1%. However, the decision depends heavily on your Break-Even Point. This is the amount of time it takes for your monthly savings to cover the total cost of the refinance.
Key Factors Calculated:
Monthly Savings: The difference between your current principal and interest payment and your new projected payment.
Closing Costs: These typically range from 2% to 5% of the loan amount and include appraisal fees, title insurance, and origination fees.
Break-Even Period: Calculated by dividing the closing costs by your monthly savings. If you plan to move before this period ends, refinancing may not be financially beneficial.
Real-Life Example:
Imagine you have a $300,000 balance at a 6.5% interest rate with a monthly payment of roughly $1,896. By refinancing to a 5.0% interest rate on a 30-year term, your new payment would be approximately $1,610. This saves you $286 per month. If your closing costs are $5,000, your break-even point is approximately 17.5 months. If you stay in the home for the full 30 years, you would save over $100,000 in interest.