Refinancing Calculator & Formula

Refinancing Calculator





New Monthly Payment:

0%
25%
50%
75%
100%

Refinancing Formula

New Monthly Payment
=

Remaining Balance
×
New Interest Rate

1

(
1

New Loan Term
)

Explanation

The Refinancing Calculator helps you determine whether refinancing your loan at a lower interest rate will be beneficial by calculating the new monthly payment and overall savings. It’s especially useful when interest rates decrease or when you need to adjust loan terms for more manageable monthly payments.

Real-Life Example

Suppose you have a remaining balance of $200,000 on your loan with a current interest rate of 5%. You are considering refinancing to a new interest rate of 3.5% for a 20-year term. To calculate the new monthly payment:

New Monthly Payment = Remaining Balance × (New Interest Rate / (1 – (1 + New Interest Rate) ^ -New Loan Term))

Substitute the values:

New Monthly Payment = $200,000 × (3.5 / 100) / (1 – (1 + 3.5 / 100) ^ -20) = $1,160

This means the new monthly payment would be approximately $1,160, resulting in lower payments than the original loan terms.

Benchmark Indicators

Understanding refinancing benchmarks helps in deciding whether refinancing is beneficial:

  • Monthly Savings of 5% or less: Low savings, refinancing might not be worth it after fees.
  • Monthly Savings of 5-10%: Moderate savings; worth considering if fees are low.
  • Monthly Savings of 10-15%: High savings; refinancing can lead to substantial savings.
  • Monthly Savings of 15% and above: Excellent savings; refinancing is highly beneficial.

Frequently Asked Questions

What is loan refinancing?

Refinancing involves replacing an existing loan with a new one at a different interest rate or term, often to achieve lower monthly payments or total interest costs.

How do interest rates impact refinancing?

Lower interest rates decrease monthly payments and total interest, potentially saving borrowers a significant amount.

What costs are involved in refinancing?

Refinancing can involve fees such as appraisal, application, origination, and closing fees. Understanding all fees helps assess overall savings accurately.

When is refinancing beneficial?

Refinancing is beneficial when the new loan offers a significantly lower interest rate or better terms than the original loan, reducing overall costs.

How long should I plan to stay in my home before refinancing?

Staying long enough to recover refinancing costs through monthly savings makes refinancing a worthwhile option. This period varies based on loan details and personal goals.