Mortgage Refinance Calculator

What is Mortgage Refinancing?

Mortgage refinancing involves paying off your existing mortgage and replacing it with a new one. This new loan will have different terms, such as a new interest rate, loan term, or even a different lender. Homeowners typically refinance to achieve specific financial goals, such as lowering monthly payments, reducing interest costs, or accessing home equity.

When is Refinancing a Good Idea?

• Lower Interest Rates: If current interest rates are significantly lower than your existing rate, you could save a substantial amount over the life of the loan.
• Lower Monthly Payments: Extending your loan term or securing a lower rate can reduce your monthly payment, freeing up cash flow.
• Shorten Loan Term: Refinancing to a shorter term (e.g., from 30 to 15 years) can save on total interest, though monthly payments will likely increase.
• Switch Loan Types: Moving from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage for stability.
• Cash-Out Refinance: Tapping into your home equity for large expenses like home renovations, education, or debt consolidation.

Types of Mortgage Refinance

• Rate-and-Term Refinance: The most common type, aimed at changing your interest rate, loan term, or both, without taking out additional cash.
• Cash-Out Refinance: You take out a new mortgage for more than you currently owe, and receive the difference in cash. This increases your loan principal but provides liquid funds.
• Streamline Refinance: Available for FHA, VA, and USDA loans, this type often requires less paperwork and no appraisal, making it a quicker process, typically for rate-and-term changes.
• No-Closing-Cost Refinance: The lender covers closing costs, usually in exchange for a slightly higher interest rate. While it saves upfront money, you might pay more over time.

Key Factors to Consider

• Closing Costs: Refinancing involves new closing costs, which can range from 2% to 5% of the loan amount. Factor these into your savings calculation.
• Break-Even Point: Determine how long it will take for your monthly savings to offset the closing costs. If you plan to move before reaching this point, refinancing might not be beneficial.
• Credit Score: A higher credit score generally qualifies you for better interest rates. Improve your score before applying for a refinance.
• Home Equity: Lenders typically prefer you to have at least 20% equity in your home, especially for cash-out refinances.
• Long-Term Goals: Align your refinance decision with your financial objectives, whether it's reducing debt, building wealth, or improving cash flow.