Understanding Home Refinancing and This Calculator
Refinancing your home loan involves replacing your existing mortgage with a new one. Homeowners typically refinance to take advantage of lower interest rates, reduce their monthly payments, shorten their loan term, or tap into their home's equity. This calculator helps you estimate the potential financial benefits of refinancing by comparing your current mortgage to a proposed new loan.
How the Calculator Works:
This calculator estimates your potential savings by comparing the total cost of your current loan over its remaining term with the total cost of a new refinanced loan, factoring in any upfront costs associated with the refinance.
Current Total Interest Paid: Calculates the total interest you would pay on your existing loan from this point forward. This is based on your current loan balance, current interest rate, and the remaining term.
New Total Interest Paid: Calculates the total interest you would pay on the new, refinanced loan. This considers the new loan balance, the new, potentially lower interest rate, and the remaining loan term (which may be the same or different if you chose a new loan term).
Net Savings: This is the difference between the total interest saved from a lower rate and the total interest paid on the new loan, minus the upfront costs of refinancing. A positive result indicates that the refinance is financially beneficial over the remaining term.
Key Inputs Explained:
Current Loan Balance ($): The principal amount you still owe on your current mortgage.
Current Interest Rate (%): The annual interest rate of your existing mortgage.
New Loan Balance ($): The principal amount of the new mortgage you are considering. This might be the same as your current balance, or it could include closing costs rolled into the new loan.
New Interest Rate (%): The annual interest rate of the new mortgage you are considering.
Remaining Loan Term (Years): The number of years left until your current mortgage is fully paid off. This is used to calculate the total interest on your existing loan. For the new loan, we assume the term length corresponds to how long you plan to keep the new loan, which is often similar to your remaining term, but this calculator uses it to determine the total cost of the new loan over its life.
Refinance Costs ($): The total fees and expenses associated with obtaining the new loan (e.g., appraisal fees, title insurance, origination fees, lender fees).
When to Consider Refinancing:
Lower Interest Rates: If market interest rates have dropped significantly since you obtained your current mortgage, refinancing can lock in a lower rate and reduce your interest payments.
Reduced Monthly Payments: Even if the interest rate isn't drastically lower, extending the loan term can lower your monthly payments, improving your cash flow.
Debt Consolidation: You can sometimes use a refinance (cash-out refinance) to pay off higher-interest debts with a mortgage, which typically has a lower rate.
Changing Loan Type: Switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage for payment stability, or vice-versa, depending on your financial goals.
Important Considerations:
Always compare the total cost of the new loan (including interest and fees) against the total remaining cost of your current loan. Consider how long you plan to stay in the home. If you plan to sell soon, the upfront refinance costs might outweigh the savings. Ensure the new loan terms align with your long-term financial strategy.
function calculateRefinance() {
var currentLoanBalance = parseFloat(document.getElementById("currentLoanBalance").value);
var currentInterestRate = parseFloat(document.getElementById("currentInterestRate").value);
var newLoanBalance = parseFloat(document.getElementById("newLoanBalance").value);
var newInterestRate = parseFloat(document.getElementById("newInterestRate").value);
var loanTermRemaining = parseFloat(document.getElementById("loanTermRemaining").value);
var refinanceCosts = parseFloat(document.getElementById("refinanceCosts").value);
var resultValueElement = document.getElementById("result-value");
var resultExplanationElement = document.getElementById("result-explanation");
// Validate inputs
if (isNaN(currentLoanBalance) || isNaN(currentInterestRate) || isNaN(newLoanBalance) || isNaN(newInterestRate) || isNaN(loanTermRemaining) || isNaN(refinanceCosts)) {
resultValueElement.textContent = "Invalid Input";
resultExplanationElement.textContent = "Please enter valid numbers for all fields.";
return;
}
if (currentLoanBalance <= 0 || currentInterestRate < 0 || newLoanBalance <= 0 || newInterestRate < 0 || loanTermRemaining <= 0 || refinanceCosts < 0) {
resultValueElement.textContent = "Invalid Input";
resultExplanationElement.textContent = "Please enter positive values for balances and terms, and non-negative values for rates and costs.";
return;
}
// — Calculation Logic —
// Function to calculate total interest paid for a given loan
// Formula: Total Interest = (Total Payments * Number of Payments) – Principal
// To get total payments, we first need the monthly payment (M) using the loan amortization formula:
// M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
// Where: P = Principal Loan Amount, i = monthly interest rate, n = total number of payments
function calculateTotalInterest(principal, annualRate, termInYears) {
var monthlyRate = annualRate / 100 / 12;
var numberOfPayments = termInYears * 12;
// Handle case where interest rate is 0
if (monthlyRate === 0) {
return 0; // No interest paid if rate is 0
}
var monthlyPayment = principal * (monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments)) / (Math.pow(1 + monthlyRate, numberOfPayments) – 1);
var totalPayments = monthlyPayment * numberOfPayments;
var totalInterest = totalPayments – principal;
return isNaN(totalInterest) || totalInterest = 0) {
resultValueElement.textContent = "$" + netSavings.toFixed(2);
resultExplanationElement.textContent = "You are estimated to save money over the remaining term of your loan.";
} else {
resultValueElement.textContent = "$" + Math.abs(netSavings).toFixed(2);
resultExplanationElement.textContent = "Refinancing may cost you more over the remaining term. Consider your goals carefully.";
}
}