Mortgage Refinance Calculator

What is a Mortgage Refinance Calculator?

A Mortgage Refinance Calculator is a financial tool that helps homeowners evaluate the potential benefits of refinancing their existing mortgage. This calculator compares your current mortgage terms with potential new terms to determine if refinancing could save you money over the life of your loan or reduce your monthly payments.

Formula for Mortgage Refinance Calculations

The primary formula used in mortgage refinance calculations is the standard mortgage payment formula:

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

Where:

• P = Monthly Payment
• L = Loan Amount
• r = Monthly Interest Rate (Annual Rate / 12)
• n = Total Number of Payments (Years × 12)

Calculation Steps

1. Calculate the monthly payment for the current mortgage using the above formula.
2. Calculate the monthly payment for the new mortgage using the same formula with new terms.
3. Compute the total cost of each mortgage by multiplying the monthly payment by the number of payments.
4. For the new mortgage, add the closing costs to the total payments.
5. Calculate monthly savings by subtracting the new monthly payment from the current monthly payment.
6. Calculate total savings by subtracting the new total cost from the current total cost.
7. Determine the break-even point by dividing the closing costs by the monthly savings.

Example

Let's consider a scenario with the following details:

• Current Mortgage Balance: $200,000
• Current Interest Rate: 4.5%
• Current Remaining Term: 25 years
• New Interest Rate: 3.5%
• New Loan Term: 30 years
• Closing Costs: $4,000

Calculation:

1. Current monthly payment: $1,111.41
2. New monthly payment: $898.09
3. Current total payments: $333,423
4. New total payments (including closing costs): $327,312
5. Monthly savings: $213.32
6. Total savings: $6,111
7. Break-even point: 19 months

In this example, refinancing could save the homeowner $6,111 over the life of the loan, with a break-even point of 19 months. However, it's important to consider that the loan term has been extended by 5 years in this scenario.