Refi Rate Calculator

by

Refinance Rate Savings Calculator

function calculateRefiSavings() { var currentRate = parseFloat(document.getElementById("currentRate").value); var refiRate = parseFloat(document.getElementById("refiRate").value); var loanBalance = parseFloat(document.getElementById("loanBalance").value); var loanTerm = parseFloat(document.getElementById("loanTerm").value); var closingCosts = parseFloat(document.getElementById("closingCosts").value); var resultDiv = document.getElementById("result"); resultDiv.innerHTML = ""; // Clear previous results if (isNaN(currentRate) || isNaN(refiRate) || isNaN(loanBalance) || isNaN(loanTerm) || isNaN(closingCosts)) { resultDiv.innerHTML = "Please enter valid numbers for all fields."; return; } if (refiRate >= currentRate) { resultDiv.innerHTML = "The new refinance rate must be lower than your current rate to see savings."; return; } if (loanBalance <= 0 || loanTerm <= 0) { resultDiv.innerHTML = "Loan balance and term must be greater than zero."; return; } var monthlyRateCurrent = (currentRate / 100) / 12; var monthlyRateRefi = (refiRate / 100) / 12; var numberOfPayments = loanTerm * 12; // Calculate original monthly payment (P * r) / (1 – (1 + r)^-n) var currentMonthlyPayment = (loanBalance * monthlyRateCurrent) / (1 – Math.pow(1 + monthlyRateCurrent, -numberOfPayments)); var refiMonthlyPayment = (loanBalance * monthlyRateRefi) / (1 – Math.pow(1 + monthlyRateRefi, -numberOfPayments)); var totalInterestCurrent = (currentMonthlyPayment * numberOfPayments) – loanBalance; var totalInterestRefi = (refiMonthlyPayment * numberOfPayments) – loanBalance; var totalSavingsInterest = totalInterestCurrent – totalInterestRefi; var netSavings = totalSavingsInterest – closingCosts; var monthlySavings = currentMonthlyPayment – refiMonthlyPayment; resultDiv.innerHTML += "

Savings Breakdown:

"; resultDiv.innerHTML += "Estimated Monthly Payment Reduction: $" + monthlySavings.toFixed(2) + ""; resultDiv.innerHTML += "Estimated Total Interest Savings: $" + totalSavingsInterest.toFixed(2) + ""; resultDiv.innerHTML += "Net Savings (after closing costs): $" + netSavings.toFixed(2) + ""; if (netSavings 0 && monthlySavings > 0) { var breakevenPeriod = closingCosts / monthlySavings; resultDiv.innerHTML += "Estimated Breakeven Period: Approximately " + breakevenPeriod.toFixed(1) + " months (or " + (breakevenPeriod / 12).toFixed(1) + " years)."; } }

Understanding Refinance Rate Savings

Refinancing your loan, whether it's a mortgage, auto loan, or personal loan, involves replacing your existing loan with a new one, often to secure a lower interest rate or change the loan terms. A Refinance Rate Savings Calculator is a crucial tool to help you determine if refinancing is financially beneficial, especially when considering the impact of a lower interest rate on your monthly payments and the total interest paid over the life of the loan.

How Refinancing Works

When you refinance, you essentially take out a new loan that pays off your old one. The new loan will have its own interest rate, loan term, and associated fees (closing costs). The primary goal for many is to obtain a lower Annual Percentage Rate (APR). A lower rate means less of your monthly payment goes towards interest and more towards the principal balance, allowing you to pay off your loan faster or reduce your monthly financial obligations.

Key Factors in Refinance Savings

  • Current Interest Rate: Your existing loan's interest rate.
  • New Refinance Rate: The interest rate offered by the new loan. A lower rate is essential for savings.
  • Current Loan Balance: The outstanding amount you still owe on your existing loan.
  • Remaining Loan Term: The number of years left on your current loan. This impacts the total interest paid and how quickly you can benefit from savings.
  • Estimated Closing Costs: Fees associated with originating the new loan, such as appraisal fees, title insurance, origination fees, etc. These costs must be factored in to determine true savings.

Calculating Your Savings

The core of refinancing savings lies in comparing the monthly payments and total interest paid under your current loan versus the proposed new loan. The formula for calculating a fixed-rate loan payment (amortization) is:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Where:

  • M = Your total monthly mortgage payment
  • P = The principal loan amount (your loan balance)
  • i = Your monthly interest rate (annual rate divided by 12)
  • n = The total number of payments over the loan's lifetime (loan term in years multiplied by 12)

By calculating the monthly payment and total interest for both your current loan and the potential refinance loan, you can determine:

  • Monthly Savings: The difference between your current monthly payment and the new refinance monthly payment.
  • Total Interest Savings: The difference in the total interest you would pay over the remaining loan term with your current loan versus the new loan.
  • Net Savings: This is the most critical figure. It's your Total Interest Savings minus the Closing Costs. If this number is positive, refinancing is likely a good financial decision.
  • Breakeven Period: The time it takes for your monthly savings to recoup the closing costs. It's calculated by dividing the Closing Costs by your Monthly Savings.

When Does Refinancing Make Sense?

Refinancing is typically advantageous when:

  • Market interest rates have fallen significantly since you took out your original loan.
  • Your credit score has improved, allowing you to qualify for a better rate.
  • You can shorten your loan term while maintaining a manageable monthly payment, allowing you to pay off debt faster and save on interest.
  • You can convert an adjustable-rate mortgage (ARM) to a fixed-rate mortgage to gain payment stability.

It's essential to compare the total cost of the new loan (including closing costs) against the total cost of keeping your existing loan. The Refinance Rate Savings Calculator helps you perform this crucial comparison, ensuring you make an informed decision that benefits your financial future.

Example Scenario

Let's say you have a mortgage with the following details:

  • Current Interest Rate: 5.50%
  • Current Loan Balance: $250,000
  • Remaining Loan Term: 20 years (240 months)

You are offered a refinance option:

  • New Refinance Rate: 4.75%
  • Estimated Closing Costs: $5,000

Using the calculator:

  • The original monthly payment (principal & interest) on the current loan would be approximately $1,665.38.
  • The new monthly payment (principal & interest) on the refinance loan would be approximately $1,519.79.
  • This results in a Monthly Savings of $145.59.
  • Over the remaining 20 years, the total interest paid on the current loan would be approximately $149,689.30, while on the new loan, it would be approximately $114,750.80. The Total Interest Savings is $34,938.50.
  • After deducting the closing costs of $5,000, the Net Savings is $29,938.50.
  • The Breakeven Period is approximately $5,000 / $145.59 ≈ 34.3 months (about 2.86 years).

In this example, refinancing is clearly beneficial as the net savings are substantial, and the breakeven period is relatively short.

Leave a Comment