Mortgage Refinance Calculator
Use our Mortgage Refinance Calculator to determine how much money you can save by refinancing. This calculator compares your new mortgage payment to your current payment as well as your current loan balance to your new mortgage to help you decide if it makes sense to refinance. Use our calculator to evaluate multiple scenarios based on different interest rates, loan amounts, programs and closing fees. This enables you to understand the benefits and costs of refinancing your mortgage to help you decide if it makes financial sense for you.
How Our Mortgage Refinance Calculator Works
The decision to refinance is impacted by multiple factors including your new interest rate, loan program and length. Our calculator uses the following inputs to help you determine if you should refinance your mortgage:
Current Mortgage Payment. This is your current monthly payment. Our calculator compares your current payment with your new payment.
Current Mortgage Balance. This is your outstanding principal loan balance or how much you currently owe your lender to payoff your mortgage. Please note that this is your current loan balance and not your original loan amount.
New Mortgage Amount. The is the amount of your new loan. Your new mortgage may be equal to or greater than your current mortgage balance depending on your refinance objectives.
New Mortgage Type. This is the loan program for your new mortgage: fixed rate, adjustable rate or interest only. Our Mortgage Refinance Calculator enables you to understand what happens if you change programs when you refinance. For example, you can compare a fixed rate mortgage to an adjustable rate mortgage (ARM) or interest only loan to determine how your monthly payment and potential savings changes.
Interest Rate for New Mortgage. This is the mortgage rate for your new loan. Lowering your rate can reduce your monthly payment.
New Mortgage Term. This is the length of your new loan. Refinancing into a shorter mortgage -- for example from a 30 year into a 15 year loan -- may increase your monthly payment but reduce your total interest expense over the life of your loan.
Closing Costs. Our calculator also factors in closing costs which are important consideration when you are deciding if you should refinance. High closing costs can potentially negate the benefit of reducing your monthly payment.
Our calculator enables you to understand the following information about refinancing your mortgage:
New Mortgage Payment. This is your new payment based on your loan amount, mortgage program, interest rate and loan length.
Total Interest Expense for New Mortgage. This is how much money you spend on interest over the life of your new mortgage. Total interest expense is determined by your mortgage rate as well as your loan term.
Monthly Payment Savings or Cost. Our calculator compares your new monthly payment to your current payment to determine your monthly savings or cost. The higher your monthly savings, the greater the benefit you gain by refinancing.
Months to Recover Closing Costs. Our calculator divides your monthly payment savings into your closing costs to show you how long it takes to recover your costs, which is also known as the breakeven point. For example, if you save $200 on your new monthly payment and pay $2,000 in closing costs, it takes you ten months to breakeven ($2,000 / $200 per month = 10 months to recover your costs). If it takes too long to breakeven then refinancing may not be the right option, especially if you are going to continue owning your home for a relatively short period of time.
Key Mortgage Refinance Benefits and Considerations
Refinance to Lower Your Mortgage Rate
As a rule of thumb, your new mortgage rate should be at least .750% lower than your current interest rate if you are refinancing to reduce your rate and monthly mortgage payment. Lowering your mortgage rate by at least .750% should enable you to recover your closing costs within 30 months. A smaller reduction in interest rate may make financial sense for borrowers considering a "no-cost" refinance but a "no cost" refinance may actually cost borrowers more in the long run because you pay a higher interest rate than you do if you pay standard closing costs. When deciding if it makes sense to refinance, borrowers should consider the interest rate, mortgage payment savings, closing costs and total interest expense over the life of the mortgage. Use our Mortgage Refinance Calculator to understand how much money you can save by reducing your mortgage rate.
Refinance to Shorten Your Mortgage Length
One of the best reasons to refinance is to shorten the length of your mortgage because it enables you to both lower your interest rate and save thousands of dollars in interest expense over the life of your mortgage. The flip side of a shorter mortgage term is that your monthly mortgage payment increases because you pay off your loan over a shorter period of time. Borrowers should check with lenders to make sure they can afford a higher monthly payment because a shorter mortgage offers significant financial benefits. For example, for a $250,000 mortgage, based on current interest rates borrowers can save approximately $100,000 in total interest expense over the term of the loan by selecting a 15 year mortgage as compared to a 30 year mortgage. Our Mortgage Refinance Calculate enables you to compare the monthly payment and total interest expense for loans with different lengths.
Refinance Your ARM or Interest Only Loan Into a Fixed Rate Mortgage
If you have an adjustable rate mortgage (ARM) or interest only mortgage and are worried about an increase in interest rates and your monthly mortgage payment then refinancing into a fixed rate mortgage may be a sound financial decision. Although the interest rate and monthly payment on a fixed rate mortgage may be higher in the near term, you may save a significant amount of money in the long term if interest rates increase. Beyond the long term financial benefit, a fixed rate mortgage provides greater certainty than an adjustable rate mortgage or interest only mortgage. The extra peace of mind may be more valuable to borrowers than the financial savings and justify the cost of refinancing into a fixed rate mortgage. With our Mortgage Refinance Calculator you can evaluate if you should change your loan program when you refinance.
Downside of Extending Your Mortgage Term When You Refinance
One of the biggest mistakes borrowers make when they refinance is to replace their current mortgage with a new mortgage that is the same length. By replacing your existing mortgage with a new mortgage that is the same length you are effectively extending the length of your original mortgage. For example, if a borrower is 10 years into a 30 year mortgage and refinance with a new 30 year mortgage he or she is effectively making the original 30 year loan a 40 year loan. Extending the length of a mortgage means that the borrower is required to pay thousands of dollars more in total interest expense. There are many sound reasons to refinance your mortgage including to lower your monthly payment and take cash out of your home but you should compare any financial benefit to the extra cost of extending your original mortgage.
Don't Forget About Closing Costs
Closing costs can run thousands of dollars when you refinance and are an important consideration for prospective borrowers. You may be tempted by a lower mortgage rate and monthly payment but high closing costs may outweigh those benefits. Alternatively, many lenders offer no cost refinances but charge you a higher mortgage rate. In this case you pay little or no closing costs but the higher rate can significantly increase your total interest expense. Whether it is high closing costs or no costs at all, you should consider the financial consequences of these expenses when you decide if you should refinance.
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Sources
"Determining Whether to Refinance." My Home by Freddie Mac. Freddie Mac, 2019. Web.