Maria is a licensed mortgage broker specializing in loan modification, refinancing options, and optimizing loan-to-value (LTV) ratios for homeowners.
The **Mortgage Refinance Calculator** helps you determine if refinancing your existing loan is financially beneficial. This tool calculates the **Monthly Savings (P)** and the **Break-Even Time (Q)** by comparing your current loan (F) to a new loan (V) and factoring in closing costs. Enter any three variables related to the savings or break-even time to solve for the missing one.
Mortgage Refinance Calculator
Enter loan details to calculate your potential savings and break-even time.
Current Loan Details (F)
New Loan Details (V)
Results (P, Q)
Refinance Formulas
The core refinancing analysis focuses on two simple metrics: the amount saved each month and the time it takes to recover the upfront costs.
Solve for Monthly Savings ($) (P):
P = CurrentPayment – NewPayment
Solve for Break-Even Time (Months) (Q):
Q = ClosingCost / P
Solve for Closing Costs ($) (V):
V = P × Q
Formula Source: NerdWallet: Refinance Break-Even Point
Variables Explained
- P (Monthly Savings): The difference between your Current Monthly Payment and the New Estimated Monthly Payment ($).
- F (Current Payment): Your existing monthly principal and interest payment ($).
- V (New Payment): Your estimated new monthly principal and interest payment after refinancing ($).
- Q (Break-Even Time): The number of months it takes for the total monthly savings (P) to cover the upfront Closing Costs (V).
Related Calculators
Make a complete decision on your refinancing strategy:
- Mortgage Payment Calculator (Calculate new payment accurately)
- Home Equity Calculator (Determine LTV for new loan)
- Debt Consolidation Calculator (If using cash-out refinance)
- Loan Interest Calculator (Total interest comparison)
What is Mortgage Refinancing?
Mortgage refinancing is the process of paying off an existing loan and replacing it with a new one. Homeowners typically refinance to take advantage of lower interest rates, which reduces their monthly payments (a rate-and-term refinance), or to tap into their home’s equity for cash (a cash-out refinance). A key factor in deciding whether to refinance is the **break-even point**.
The break-even point is the time (in months) required for the monthly savings generated by the lower payment to equal the total upfront closing costs of the new loan. If a homeowner plans to stay in the home longer than the break-even time, refinancing is usually financially sound. If they plan to move sooner, the upfront cost might negate the savings.
How to Calculate Break-Even Time (Example)
Let’s find the **Break-Even Time (Q)** if the Monthly Savings (P) is \$300 and the Closing Costs are \$4,500.
- Determine Monthly Savings (P):
Savings (P) = Current Payment – New Payment = $\mathbf{\$300}$ (Given)
- Determine Total Costs (V):
Closing Costs (V) = $\mathbf{\$4,500}$ (Given)
- Apply the Formula:
Q = Closing Cost / Monthly Savings = \$4,500 / \$300.
- Final Result:
Q = $\mathbf{15}$ months. The homeowner needs 15 months to recover the cost of refinancing.
Frequently Asked Questions (FAQ)
What are typical refinancing closing costs?
Closing costs typically range from 2% to 5% of the new loan amount and include origination fees, appraisal fees, title insurance, and legal fees.
Should I choose a longer or shorter loan term?
Choosing a shorter term (e.g., 15 years) means higher monthly payments but significantly less total interest paid. A longer term (e.g., 30 years) offers lower monthly payments but results in paying more interest over the life of the loan.
When is refinancing a bad idea?
Refinancing is usually a bad idea if you plan to move before hitting the break-even point, or if the new interest rate isn’t significantly lower than your current rate.
What is a ‘Cash-Out’ Refinance?
A cash-out refinance involves borrowing more than your remaining mortgage balance and taking the difference in cash, using your home equity as collateral.