Mortgage Refinance Payment Calculator: Understanding Your Options

What is Mortgage Refinancing?

Mortgage refinancing is the process of replacing an existing mortgage with a new loan, typically with better terms such as a lower interest rate or a different loan duration. The primary goal is often to reduce monthly payments, lower the overall interest paid over the life of the loan, or to tap into home equity.

The Mortgage Refinance Payment Formula

The formula used to calculate the new monthly payment after refinancing is the same as the standard mortgage payment formula:

\[P = L\frac{r(1+r)^n}{(1+r)^n-1}\]

Where:

• \(P\) = Monthly payment
• \(L\) = Loan amount (remaining balance on the current mortgage)
• \(r\) = Monthly interest rate (new annual rate divided by 12)
• \(n\) = Total number of months in the new loan term

Step-by-Step Calculation Process

1. Calculate the current monthly payment using the original loan terms.
2. Determine the remaining balance on the current mortgage.
3. Calculate the new monthly payment using the refinance terms and remaining balance.
4. Compare the current and new monthly payments to determine savings.
5. Calculate total savings over the remaining loan term.

Example Calculation

Let's calculate the potential savings for refinancing a $200,000 mortgage with 20 years remaining at 5% interest to a new 15-year mortgage at 3.5% interest:

1. Current monthly payment: $1,319.91
2. Remaining balance after 10 years: $159,819.91
3. New monthly payment: $1,143.88
4. Monthly savings: $1,319.91 - $1,143.88 = $176.03
5. Total savings over 15 years: $176.03 × 180 months = $31,685.40

Visual Representation

The green bar represents the current monthly payment, while the blue bar shows the new monthly payment after refinancing. The difference in length illustrates the monthly savings.