Using a mortgage refinance calculator can help you shop for the best mortgage. After you input the data, the tool will calculate your monthly savings, new payment, and lifetime savings, taking into account the estimated costs of refinancing your home. Getting a mortgage generally requires paying fees, often amounting to thousands of dollars. It takes a while for a refinance to break even — that is, for the accumulated monthly savings to exceed the refinance closing costs.
Working with a refinance calculator will give you a good idea of what to expect. Even better, when you have a few estimates from mortgage lenders you can enter the terms they offer you into the calculator to help determine which one offers the best deal.
Now for a little legwork — or more likely web work and phone calls. You want to shop for your best refinance rate and get a Loan Estimate from each lender. Each potential lender is required to issue the estimate within three days of receiving your basic information.
The Loan Estimate is a simple three-page document that details the loan terms, projected payments, estimated closing costs and other fees. Compare the loan details from each lender and decide which one is best for you. This is a good time to work that mortgage refinance calculator.
Ready to tackle the refinance process? Set your goal. Reduce monthly payments? Shorten the loan term? Get rid of FHA mortgage insurance? Shop for the best mortgage refinance rate. Keep an eye on fees, too. Apply for a mortgage with three to five lenders. Submit all applications within a two-week period to minimize the impact on your credit score. Choose a refinance lender. To pick the best offer, compare the Loan Estimate document each lender provides after you apply.
Lock your interest rate. You and the lender will try to close the loan before the rate lock expires. Close on the loan. Closing on a refinance is like closing on a purchase loan, with one main difference: No one hands you the keys to the home at the end. Definition of mortgage refinance. Current monthly payment New monthly payment. Between and the first quarter of , the median number of years a borrower has kept a mortgage before refinancing is 3.
If you think your new loan will be your last, make sure to account for any additional years of interest you will be paying. When market interest rates drop, refinancing to get a lower interest rate can lower your monthly payment, lower your total interest payments or both. Another thing that can lower your monthly payment is paying interest on a smaller principal amount, possibly over more years. This is the most common choice: a rate-and-term refinance.
A higher credit score will help you get a better interest rate on your mortgage. Almost 3 in 4 homeowners who refinanced in April had a credit score of or higher, according to mortgage processor Ellie Mae. The average FICO score was Bringing cash to closing might also get you a slightly lower interest rate or allow you to avoid private mortgage insurance PMI.
Three percent of borrowers did this during the first quarter of While cash-out refi rates can be a bit higher than rate-and-term refinance rates, there still may be no cheaper way to borrow money. If you refinance from a year to a year mortgage, your monthly payment will often increase.
But not only is the interest rate on year mortgages lower; shaving years off your mortgage will mean paying less interest over time. That said, with mortgage interest rates so low, some people prefer to spend more years paying off their home so they have more cash to invest at a higher rate and more years for their investment earnings to compound.
Eliminating private mortgage insurance on a conventional loan is not, by itself, a reason to refinance. Some borrowers refinance because they have an adjustable-rate mortgage and they want to lock in a fixed rate. Most of your monthly payments go toward interest at the beginning of a year loan.
Refinancing into a year mortgage helps you build equity faster, but it may increase your monthly payment, as the table below shows. Interest on first payment. For some people, getting a lower monthly payment is the most important reason for refinancing. It may not be an ideal long-term plan to recommit to 30 years of payments, but it may be essential to keeping your home and paying your bills in the short term.
If things improve later, you can pay down your principal faster to save money, or even refinance again. Cons Lower interest rate.
Less flexibility if finances worsen Calculate Your Mortgage Refinancing Savings To calculate your monthly savings from refinancing, use a mortgage calculator to enter these numbers and get your new monthly payment:. Compare your new monthly payment to your old monthly payment. Write that number down. Then, view the amortization table for that calculation and see what your current total interest over the life of the loan will be.
How much will you save in the long run by refinancing? Look at banks, credit unions and online comparison sites. Submit three to five applications to secure formal loan estimates.
Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Know the Basics. Effects on Financial Status. When to Refinance. How to Refinance. Refinancing vs. Other Options. Home Ownership Refinancing A Home. Table of Contents Expand.
Refinancing to Lower Rate. Refinancing to Shorten Term. Refinancing to an ARM or Fixed. Refinancing to Tap Equity. The Bottom Line. Key Takeaways Getting a mortgage with a lower interest rate is one of the best reasons to refinance. When interest rates drop, consider refinancing to shorten the term of your mortgage and pay significantly less in interest payments. Switching to a fixed-rate mortgage—or to an adjustable-rate one—can make sense depending on the rates and how long you plan to remain in your current home.
Tapping equity or consolidating debt are other reasons to refinance—but beware, doing so can sometimes worsen debt problems. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Related Articles. Partner Links. Related Terms Cash-Out Refinance This mortgage-refinancing option—the new mortgage is for a larger amount than the existing loan—lets you convert home equity into cash. Use it with care. What Is a Mortgage?
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