About Mortgage Refinancing
Most homebuyers who take out a 30-year mortgage eventually end up refinancing the loan at some point along the line. That is, provided they don't sell the place and move somewhere else first.
That's been particularly true in recent years, as falling mortgage rates have given borrowers the opportunity to save a few dollars by refinancing to a lower rate. But that's not the only reason to refinance. Here's a rundown of some of the more common reasons borrowers refinance a mortgage:
- To switch to a lower mortgage rate
- To pay off the loan faster by refinancing to a shorter term (usually at a lower rate as well)
- To lower their monthly payments by extending their loan term
- To change from an ARM (adjustable-rate mortgage) to a fixed-rate loan
- To borrow against their home equity through a cash-out refinance
- To remove another person's name from the loan, such as in the case of a divorce
This calculator is designed to deal with the first three situations. It will calculate your monthly payments and savings from refinancing, and will figure how much more you might end up paying over the long term if you choose the third option, lengthening your loan.
When you refinance, you're simply replacing your old mortgage with a new one. You go through the same steps and provide the same information you did when you got your original mortgage, and go through the same approval process. When the new mortgage is approved, those funds are used to pay off the old loan and you go simply go forward with the new loan instead.
Deciding whether to Refinance
The big question about refinancing is whether it makes financial sense or not. How much will you knock off your monthly payments? How long will it take for those savings to exceed your closing costs from refinancing? Can you afford to shorten your loan term? If you stretch out your mortgage to a longer term, will that cost you more in the long run?
These are the questions you need to answer before refinancing. This calculator can help you get those answers.
Using the Mortgage Refinance Calculator
The calculator has two main parts. In the first part, "Original mortgage," enter the information for your current mortgage. The "appraised value" should be the value of the home at the time you purchase it or otherwise took out the loan, not the current value. The calculator uses that to determine if you're presently paying for mortgage insurance.
When you refinance to a lower rate, that reduces the size of your mortgage interest deduction, which affects your savings from refinancing. The Mortgage Refinance Calculator can take that into account, which is why it asks for your income tax rate.
In the second part, "New Mortgage," you can either enter your current loan balance or let the calculator figure it out for you. If you choose the latter, the calculator determines what your current balance should be based on regular amortization, without any additional or late payments.
The "loan origination rate" is the percentage of the loan amount your lender is charging to originate the loan. Other closing costs are entered in the "other costs" box.
After entering your information, hit the "calculate" button and the calculator will figure out your new monthly payment and total savings over the life of the loan. The "View report" button will take you to a new page that will show a breakdown of your savings and the new mortgage in more detail.
Wonder what rate you could get by refinancing? Click "Get Free Quote" for a rate quote tailored to your individual profile.