Refinance Calculator

Compare your current loan with a new one to see your potential savings.

Current Loan Balance

$

Please enter a valid loan balance.

Current Interest Rate

%

Please enter a valid interest rate.

Remaining Loan Term (Years) Please enter a valid term.

New Interest Rate

%

Please enter a valid interest rate.

New Loan Term (Years) Please enter a valid term.

Closing Costs

$

Please enter valid closing costs.

Round Decimals 0 1 2 3 4 5 6

Results

Monthly Savings

? The reduction in your monthly payment. (Current Payment - New Payment)

Total Net Savings

? Total interest saved over the life of the loan, minus closing costs.

Break-Even Point

? Time it takes for monthly savings to cover closing costs. (Closing Costs / Monthly Savings)

Current Monthly Payment

? Estimated payment to pay off remaining balance over remaining term.

New Monthly Payment

? Your monthly payment with the new refinanced loan.

Total Interest Paid (New Loan)

? Total interest you'll pay over the life of the new loan.

Monthly Payment Comparison

New Loan: Principal vs. Interest

What is Loan Refinancing?

Loan refinancing is the process of replacing an existing loan with a new one. Homeowners or borrowers typically refinance to obtain better terms, most commonly a lower interest rate, which can reduce the monthly payment. Other reasons to refinance include switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, shortening the loan term to pay it off faster, or tapping into home equity for cash (cash-out refinance).

How to Calculate Refinancing Savings

Calculating the potential savings from refinancing involves a few key steps:

1. Calculate Your New Monthly Payment: Use the amortization formula with the new loan amount, new interest rate, and new term.
2. Find Your Monthly Savings: Subtract the new monthly payment from your current monthly payment.
3. Calculate the Break-Even Point: Divide your total closing costs by your monthly savings. This tells you how many months it will take to recoup the costs of refinancing.
4. Determine Total Interest Savings: Compare the total interest you would pay over the remaining term of your old loan with the total interest you will pay over the full term of your new loan. For a true net savings figure, subtract the closing costs from this amount.

Formulas Used

The primary formula used in this calculator is the loan amortization formula to determine monthly payments:

Monthly Payment (M) = $P \frac{r(1+r)^n}{(1+r)^n - 1}$

• P = Principal loan balance
• r = Monthly interest rate (annual rate / 12)
• n = Number of payments (term in years × 12)

Break-Even Point (in months) = $\frac{\text{Closing Costs}}{\text{Monthly Savings}}$

Frequently Asked Questions (FAQ)

What is loan refinancing?

Loan refinancing is the process of replacing an existing loan with a new one that typically has better terms, such as a lower interest rate, a shorter loan term, or a lower monthly payment. The new loan is used to pay off the balance of the old loan.

How do you calculate savings from refinancing?

To calculate savings, you first determine your new monthly payment and compare it to your current one. The difference is your monthly savings. Total savings are calculated by comparing the total interest you would have paid on the old loan versus the total interest plus any closing costs on the new loan.

What is the break-even point in refinancing?

The break-even point is the time it takes for your accumulated monthly savings to cover the closing costs of the new loan. It's calculated by dividing the total closing costs by your monthly savings. If you plan to stay in your home longer than the break-even period, refinancing is generally worthwhile.

What are the typical fees involved in refinancing?

Refinancing fees, often called closing costs, can include application fees, loan origination fees, appraisal fees, title search and insurance, attorney fees, and points (prepaid interest). These costs typically range from 2% to 5% of the new loan amount.

How can I get a lower interest rate?

To get a lower interest rate, you can improve your credit score, shop around with multiple lenders, choose a shorter loan term, and make a larger down payment if applicable. Market conditions also play a huge role in available interest rates.

When is the best time to refinance?

The best time to refinance is when interest rates have dropped significantly since you took out your original loan, your credit score has improved substantially, or you want to change your loan term. It's most beneficial when you can secure a rate at least 0.75% to 1% lower than your current rate and plan to stay in your home past the break-even point.