Mortgage Refinance Comparison Calculator

Mortgage Refinance Comparison Calculator

What is a Mortgage Refinance Comparison Calculator?

A Mortgage Refinance Comparison Calculator is a financial tool that helps homeowners evaluate the potential benefits of refinancing their existing mortgage. It compares the current mortgage terms with potential new terms, considering factors such as interest rates, loan terms, and closing costs. This calculator assists in determining if refinancing could lead to lower monthly payments, reduced interest over the life of the loan, or other financial advantages.

Formula for Mortgage Refinance Comparison Calculation

The primary formula used in this calculator is the standard mortgage payment formula:

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

Where:

• M = Monthly Payment
• P = Principal Loan Amount
• r = Monthly Interest Rate (Annual Rate / 12)
• n = Total Number of Months in the Loan Term

Calculation Steps

1. Calculate the monthly payment for the current mortgage using the above formula.
2. Calculate the monthly payment for the potential new mortgage using the same formula with new terms.
3. Compute the monthly savings by subtracting the new payment from the current payment.
4. Determine the break-even point by dividing the closing costs by the monthly savings.
5. Calculate total savings over the new loan term, accounting for the difference in total interest paid and closing costs.

Example

Let's consider a scenario with the following details:

• Current Loan Amount: $200,000
• Current Interest Rate: 4.5% per year
• Current Remaining Term: 25 years
• New Interest Rate: 3.5% per year
• New Loan Term: 20 years
• Closing Costs: $4,000

Calculation:

1. Current monthly payment: $1,111.41
2. New monthly payment: $1,159.49
3. Monthly savings: $1,111.41 - $1,159.49 = -$48.08
4. Break-even point: Not applicable (monthly payment increased)
5. Total interest saved: $33,556.20
6. Net savings (including closing costs): $29,556.20

In this example, while the monthly payment increases slightly, the shorter loan term and lower interest rate result in significant savings over the life of the loan. The homeowner would save $29,556.20 after accounting for closing costs, making this refinance potentially beneficial despite the higher monthly payment.