Mortgage Refinance Savings Calculator
Is Refinancing Your Mortgage Worth It?
Refinancing a mortgage involves replacing your existing home loan with a new one, typically to take advantage of lower interest rates or to change the loan term. While a lower monthly payment is attractive, it is crucial to account for the closing costs associated with the new loan.
Understanding the Break-Even Point
The "Break-Even Point" is the most critical metric when deciding to refinance. This is the number of months it takes for your cumulative monthly savings to equal the upfront costs of the refinance. For example, if your closing costs are $4,000 and you save $200 per month, your break-even point is 20 months. If you plan to sell the home before reaching this point, refinancing may actually lose you money.
How to Use This Calculator
To get an accurate estimate, follow these steps:
- Current Payment: Enter only the Principal and Interest portion of your current monthly mortgage bill (exclude taxes and insurance).
- New Payment: Enter the estimated Principal and Interest for the new loan based on current market rates.
- Closing Costs: Include loan origination fees, appraisal fees, title insurance, and credit report charges.
Real-World Example
Imagine you have a current payment of $2,100. You find a new rate that drops your payment to $1,850, saving you $250 per month. However, the bank charges $5,000 in closing costs. Using the formula (Costs / Monthly Savings), we find that it will take 20 months to break even. Over 5 years (60 months), your total net savings would be $10,000 ($15,000 in total payment reductions minus the $5,000 initial cost).