How To Use A Refinance Calculator

simplify the decision making process and do the math for you;
provide independent, objective insights; and
help you ask your loan officer intelligent questions.

The first step in using a refinance calculator effectively is to consider why you want to refinance your mortgage. Ask yourself, is my refinance goal to:

reduce my mortgage payment;
lower my interest payments;
optimize my finances;
reduce risk;
consolidate debt; or
get cash-out for other reasons?

Reduce Mortgage Payment

A refinance calculator can show you how much a refinance can save you on your monthly mortgage payments compared to your current mortgage. A closing cost calculator can help you decide how to pay for the refinance costs.

Lower Interest Payments

A refinance calculator can show you how much a refinance can save you in total interest payments compared to your current mortgage. Importantly, the refinance calculator can tell you how long it will take you to break-even on the refinance costs.

Many people make the mistake of assuming that refinancing to a lower interest rate is always beneficial. You should consider the costs of the refinance and whether you or not you will break-even before you plan to sell their home.

If your mortgage does not have a prepayment penalty, you may also be able to lower your total interest payments without refinancing by making extra payments on your mortgage and having them applied to lower your principal balance. An extra payment calculator can calculate your savings and help you evaluate this strategy of lowering the total interest to be paid versus refinancing.

Optimize Finances

A refinance calculator may be able to help you estimate potential interest related tax savings and factor in the amount you earn on investments into the refinance savings calculations. This can help you decide whether a refinance is financially beneficial given your investment earnings and tax bracket.

Reduce Risk

If you have mortgage with higher risk features such as adjustable-rates, interest-only payments, payment options, or a balloon payment you may wish to refinance into a fixed rate mortgage to reduce your risk. You may also compare the amortization schedules for the new mortgage and the amortization schedules for different interest rate scenarios for your current adjustable rate, interest-only or balloon payment mortgage using their respective mortgage calculators.

Consolidate Debt

A refinance calculator can help you compare your current mortgage with a new mortgage that was used to consolidate debt. You can compare this to your total cost of your debt prior to consolidation to make an informed decision about the refinance. A loan-to-value calculation is a measure of risk and can tell you how much equity you will have after consolidating debt.

Cash-Out Refinance

In addition to debt consolidation, borrowers may be able to get a cash-out refinance for other reasons, such as to pay for large unexpected expenses like a medical emergency. A refinance calculator can help you calculate the change in your monthly payment and estimate your total interest payments. However, it can’t decide whether the cash-out refinance is right for you since it is a personal decision dependent on how the cash will be used. If the cash is being used to provide critical medical care for a loved one there is no way a mortgage calculator can evaluate the costs and benefits.