Refinance Calculator
Determine if refinancing your mortgage could save you money.
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Should You Refinance? Calculate Your Potential Savings
Our Refinance Calculator helps you determine if refinancing your loan is a good financial move by comparing your current payment to a new one and calculating your break-even point and lifetime savings.
What is a Refinance Calculator?
A Refinance Calculator is a financial tool that helps homeowners evaluate the costs and benefits of replacing their current mortgage with a new one. By inputting details about your existing loan and the terms of a potential new loan, the calculator determines key metrics like your new monthly payment, your monthly savings, the total closing costs, and the break-even point. This allows you to make a data-driven decision on whether refinancing will save you money.
How It Works: The Cost-Benefit Analysis
The calculator performs a detailed comparison of your old and new loan scenarios:
1. New Monthly Payment = Loan Payment Formula using New Principal, Rate, and Term
2. Monthly Savings = Current Monthly Payment - New Monthly Payment
3. Break-Even Point (Months) = Total Closing Costs / Monthly Savings
- Enter Current Loan Info: Provide your current mortgage balance, interest rate, and monthly payment.
- Enter New Loan Terms: Input the proposed new interest rate and loan term.
- Add Refinance Costs: Include all closing costs, fees, and any points you're paying.
- Calculate: The tool instantly compares the two loans and calculates your savings and break-even point.
Interpreting the Results: The Break-Even Point
The most important result is the **Break-Even Point**. This tells you how many months you need to stay in your home for the refinance to be profitable. If you plan to sell your home before you reach this point, the closing costs will outweigh your monthly savings, and refinancing would be a financial loss. The **Lifetime Savings** figure shows the total potential benefit if you stay in the home for the entire loan term.
Common Refinancing Myths
- Myth 1: A lower interest rate always means you'll save money. Not if the closing costs are too high and you move before the break-even point. Also, be careful not to extend your loan term (e.g., refinancing a 15-year loan with 10 years left into a new 30-year loan), as you could end up paying more in total interest despite a lower rate.
- Myth 2: You can only refinance with your current lender. False. You can and should shop around with multiple lenders, including banks, credit unions, and online mortgage brokers, to find the best possible rate and lowest fees.
- Myth 3: "No-cost" refinances are free. There is no such thing as a truly free refinance. "No-cost" refinances typically roll the closing costs into the new loan's principal balance or charge a slightly higher interest rate to cover them.
Frequently Asked Questions
When should you refinance your mortgage?
A common rule of thumb is to consider refinancing if you can lower your interest rate by at least 1%. However, the decision also depends on how long you plan to stay in the home, as you need to stay long enough to pass the 'break-even point' where your monthly savings outweigh the closing costs of the new loan.
How does a refinance calculator work?
A refinance calculator works by comparing your current mortgage's remaining payments and total interest to the payments and interest of a new, refinanced loan. It calculates the new monthly payment, estimates the total closing costs, and determines your monthly savings and the break-even point.
What is the break-even point in a refinance?
The break-even point is the number of months it takes for the cumulative monthly savings from your new, lower payment to equal the closing costs you paid for the refinance. If you plan to sell the home before you reach the break-even point, refinancing may not be worth it.
Does refinancing hurt your credit score?
Refinancing involves a hard inquiry on your credit report, which can temporarily lower your score by a few points. However, consistently making on-time payments on the new mortgage will have a positive long-term effect on your credit score.
Tips for a Successful Refinance
- Improve Your Credit Score: Before applying, work on improving your credit score to qualify for the best possible interest rates.
- Shop Around: Get Loan Estimates from at least three different lenders to compare rates and fees.
- Don't Reset the Clock Unnecessarily: If you have 20 years left on your mortgage, consider refinancing into a 15- or 20-year loan, not a new 30-year loan, to save the most on total interest.
- Consider a Cash-Out Refinance Carefully: While a cash-out refinance can be a good way to fund home improvements, using it to consolidate high-interest debt should be done with caution, as you are converting unsecured debt into secured debt against your home.
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