Refinancing your mortgage or other loan is the process of replacing your existing loan with a new one. This is often done to take advantage of lower interest rates, change your loan term, or convert your loan type. A key benefit of refinancing is the potential to save a significant amount of money over the life of the loan, especially if you can secure a lower interest rate.
How the Refinance Rate Calculator Works
This calculator helps you estimate your potential savings when refinancing by comparing your current loan's total interest paid to the total interest paid on a new loan with a potentially lower rate. It also considers your remaining loan term and any associated closing costs.
Key Inputs Explained:
Current Loan Balance: The outstanding principal amount of your existing loan.
Current Interest Rate: The annual interest rate on your current loan.
New Interest Rate: The anticipated annual interest rate on the new loan you are considering.
Remaining Loan Term (Years): The number of years left until your current loan would be fully paid off.
Estimated Closing Costs: The fees associated with obtaining the new loan (e.g., appraisal fees, origination fees, title insurance).
The Math Behind the Savings
The calculator uses the standard amortization formula to determine the total interest paid for both the current and proposed new loan. The core formula for calculating the monthly payment (M) is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
P = Principal loan amount
i = Monthly interest rate (Annual rate / 12)
n = Total number of payments (Loan term in years * 12)
Once the monthly payments are calculated for both scenarios, the calculator sums up all monthly payments for the life of the loan and subtracts the principal to find the total interest paid. The difference in total interest, adjusted for closing costs, reveals your estimated net savings.
When Should You Consider Refinancing?
Refinancing can be a smart financial move in several situations:
Lower Interest Rates: If market interest rates have dropped significantly since you took out your original loan. A general rule of thumb is that if the new rate is at least 0.5% to 1% lower than your current rate, it might be worth exploring.
Improve Your Credit Score: An improved credit score can qualify you for better interest rates.
Change Loan Term: You might want to shorten your loan term to pay it off faster (and save on total interest) or lengthen it to lower your monthly payments.
Remove Private Mortgage Insurance (PMI): If your equity has increased sufficiently.
Access Equity: Through a cash-out refinance.
Important Considerations:
Always factor in closing costs when evaluating refinancing. The calculator helps you determine the "break-even point" – how long it will take for your monthly savings to offset the upfront costs. If you plan to move or sell the property before reaching this point, refinancing might not be financially advantageous.
function calculateAmortization(principal, annualRate, termYears) {
var monthlyRate = annualRate / 100 / 12;
var numberOfPayments = termYears * 12;
var totalInterest = 0;
if (monthlyRate === 0) {
totalInterest = 0; // Simple interest if rate is 0
} else {
var monthlyPayment = principal * (monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments)) / (Math.pow(1 + monthlyRate, numberOfPayments) – 1);
var totalPaid = monthlyPayment * numberOfPayments;
totalInterest = totalPaid – principal;
}
// Ensure interest is not negative due to floating point errors or edge cases
return Math.max(0, totalInterest);
}
function calculateRefinance() {
var currentLoanBalance = parseFloat(document.getElementById("currentLoanBalance").value);
var currentInterestRate = parseFloat(document.getElementById("currentInterestRate").value);
var newInterestRate = parseFloat(document.getElementById("newInterestRate").value);
var remainingLoanTerm = parseFloat(document.getElementById("remainingLoanTerm").value);
var closingCosts = parseFloat(document.getElementById("closingCosts").value);
var resultDiv = document.getElementById("result");
var resultMessage = document.getElementById("result-message");
var resultValue = document.getElementById("result-value");
var additionalInfoDiv = document.getElementById("additional-info");
resultMessage.textContent = "";
resultValue.textContent = "";
additionalInfoDiv.innerHTML = "";
if (isNaN(currentLoanBalance) || isNaN(currentInterestRate) || isNaN(newInterestRate) || isNaN(remainingLoanTerm) || isNaN(closingCosts)) {
resultMessage.textContent = "Error";
resultValue.textContent = "Please enter valid numbers for all fields.";
return;
}
if (currentLoanBalance <= 0 || remainingLoanTerm <= 0 || closingCosts = currentInterestRate) {
resultMessage.textContent = "No Significant Savings";
resultValue.textContent = "The new interest rate is not lower than your current rate.";
additionalInfoDiv.innerHTML = "Consider refinancing only if the new rate is significantly lower to offset closing costs and potential fees.";
return;
}
var currentTotalInterest = calculateAmortization(currentLoanBalance, currentInterestRate, remainingLoanTerm);
var newTotalInterest = calculateAmortization(currentLoanBalance, newInterestRate, remainingLoanTerm);
var grossSavings = currentTotalInterest – newTotalInterest;
var netSavings = grossSavings – closingCosts;
if (netSavings > 0) {
resultMessage.textContent = "Estimated Net Savings";
resultValue.textContent = "$" + netSavings.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
var breakEvenMonths = closingCosts / ((currentLoanBalance * (currentInterestRate / 100 / 12)) – (currentLoanBalance * (newInterestRate / 100 / 12)) / (1 + (newInterestRate / 100 / 12))); // This is a simplification; a true break-even requires monthly payment comparison
// Recalculate break-even more accurately using monthly payments
var monthlyRateCurrent = currentInterestRate / 100 / 12;
var monthlyRateNew = newInterestRate / 100 / 12;
var numPayments = remainingLoanTerm * 12;
var currentMonthlyPayment = 0;
if (monthlyRateCurrent > 0) {
currentMonthlyPayment = currentLoanBalance * (monthlyRateCurrent * Math.pow(1 + monthlyRateCurrent, numPayments)) / (Math.pow(1 + monthlyRateCurrent, numPayments) – 1);
} else {
currentMonthlyPayment = currentLoanBalance / numPayments;
}
var newMonthlyPayment = 0;
if (monthlyRateNew > 0) {
newMonthlyPayment = currentLoanBalance * (monthlyRateNew * Math.pow(1 + monthlyRateNew, numPayments)) / (Math.pow(1 + monthlyRateNew, numPayments) – 1);
} else {
newMonthlyPayment = currentLoanBalance / numPayments;
}
var monthlyPaymentDifference = currentMonthlyPayment – newMonthlyPayment;
var breakEvenMonthsCalc = 0;
if (monthlyPaymentDifference > 0) {
breakEvenMonthsCalc = closingCosts / monthlyPaymentDifference;
} else {
breakEvenMonthsCalc = Infinity; // No monthly savings means infinite break-even
}
additionalInfoDiv.innerHTML =
"Gross Savings (before costs): $" + grossSavings.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + "" +
"Estimated Break-Even Point: " + Math.ceil(breakEvenMonthsCalc) + " months (" + Math.ceil(breakEvenMonthsCalc / 12) + " years)" +
"This calculator assumes you keep the loan for the entire remaining term. Savings are estimates and do not include all potential fees or changes in loan terms beyond interest rate.";
} else {
resultMessage.textContent = "No Net Savings";
resultValue.textContent = "$" + netSavings.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
additionalInfoDiv.innerHTML = "The estimated closing costs outweigh the interest savings. Refinancing may not be beneficial at this time.";
}
}