Loan Refinance Calculator

What This Calculator Does

The Loan Refinance Calculator is designed to help you quickly evaluate whether refinancing your existing loan makes financial sense. By comparing your current loan terms with potential new terms, this tool calculates your monthly payment savings, total savings, and the time it takes to break even on closing costs. Use this calculator to make informed, data-driven decisions about your refinancing options.

How to Use This Calculator

1. Enter your Current Balance, which is the amount you still owe on your existing loan.
2. Input your Current Interest Rate as a percentage (for example, 4.5).
3. Provide your Original Term in years (such as 30 for a 30-year loan).
4. Specify how many years you have already paid on your current loan in Years Already Paid.
5. Enter the New Interest Rate offered for your refinance, as a percentage.
6. Set the New Term in years for the refinanced loan.
7. Add the Closing Costs you expect to pay to complete the refinance process.
8. Review the output fields: Monthly Savings, Current Payment, New Payment, Break-Even Time, and Total Savings. These will update automatically as you input your data.
9. Use the results to assess whether refinancing aligns with your financial goals and timeline.

Definitions of Key Terms

Current Balance ($)

The remaining principal you owe on your current loan before refinancing.

Current Interest Rate (%)

The annual interest rate charged on your current loan, expressed as a percentage.

Original Term (years)

The total period, in years, over which your original loan was scheduled to be repaid.

Years Already Paid

The number of years you have already paid toward your original loan.

New Interest Rate (%)

The annual interest rate for the refinanced loan, expressed as a percentage.

New Term (years)

The period, in years, over which the refinanced loan will be repaid.

Closing Costs ($)

The total fees and costs associated with originating the new refinanced loan.

Monthly Savings

The difference between your current monthly payment and the new monthly payment after refinancing. This value shows how much you save each month by refinancing.

Current Payment

The amount you currently pay each month on your existing loan, based on your original terms and remaining balance.

New Payment

The estimated monthly payment on your refinanced loan, considering the new interest rate and loan term.

Break-Even Time

The number of months it takes for your monthly savings to cover the closing costs of refinancing. This helps you determine how long you need to keep the new loan to start realizing true savings.

Total Savings

The cumulative amount saved over the life of the new loan after accounting for closing costs, compared to sticking with your current loan and making scheduled payments.

Calculation Methodology

The Loan Refinance Calculator uses standard amortization formulas to estimate monthly payments and compares the current and refinanced loans. It then determines your monthly savings, break-even period, and total potential savings. Here are the core calculation steps:

Calculate remaining balance after Years Already Paid on original loan:
P = Current Balance
r = Current Interest Rate / 12 / 100
n = (Original Term * 12) - (Years Already Paid * 12)

Current Payment = [P * r * (1 + r)^(n + (Years Already Paid * 12))] / [(1 + r)^(Original Term * 12) - 1]
Alternatively, use standard amortization formula for current payment:
Current Payment = [P * r * (1 + r)^N] / [(1 + r)^N - 1]
where N = Original Term * 12

Calculate new monthly payment:
P_new = Current Balance
r_new = New Interest Rate / 12 / 100
n_new = New Term * 12

New Payment = [P_new * r_new * (1 + r_new)^n_new] / [(1 + r_new)^n_new - 1]

Monthly Savings = Current Payment - New Payment

Break-Even Time (months) = Closing Costs / Monthly Savings

Calculate total remaining cost of current loan:
Total Remaining Cost = Current Payment * n

Calculate total cost of new loan (including closing costs):
Total New Loan Cost = (New Payment * n_new) + Closing Costs

Total Savings = Total Remaining Cost - Total New Loan Cost

These steps assume no additional payments or changes to loan terms outside of those entered. The break-even analysis reveals how long you must keep your refinanced loan before the savings offset your upfront closing costs.

Practical Scenarios

• Lowering Your Interest Rate: You have a $200,000 mortgage at 5% with 25 years left. By refinancing to a 3.5% rate with a 20-year term and $3,000 in closing costs, you want to see if the monthly savings and total savings justify refinancing.
• Reducing Your Loan Term: You currently have $120,000 left on a 30-year loan with 22 years remaining at 4%. You consider refinancing to a 15-year loan at 3% with $2,500 in closing costs to pay off your home faster and save on interest, even if your monthly payment increases.
• Consolidating Debt: You hold multiple high-interest loans and consider refinancing into a single lower-interest loan. By inputting your outstanding balance and new loan terms, you can estimate your new monthly payment and total savings, helping you decide if consolidation is a smart move.
• Evaluating Short-Term Ownership: You expect to move or sell your property within five years. The calculator helps you determine if you will recoup your closing costs before you move, by showing the break-even time and total savings.

Advanced Tips & Best Practices

• Be Realistic About Closing Costs: Make sure to include all fees, such as appraisal, title insurance, and lender charges, in the closing costs field. Underestimating them can skew your break-even and total savings calculations.
• Consider Your Future Plans: If you plan to sell or refinance again soon, check if the break-even time aligns with your expected timeline. Refinancing is typically most beneficial when you plan to stay in the property beyond the break-even point.
• Compare Different Scenarios: Adjust the new interest rate, term, and closing costs to see how each factor affects your savings and break-even period. This helps you negotiate better terms or decide between lenders.
• Account for Additional Payments: If you intend to make extra payments on your new loan, factor these into your decision. Extra payments can accelerate your payoff and boost savings, but may not always be reflected in standard calculations.
• Check for Prepayment Penalties: Some loans charge fees for paying off your balance early. Review your current loan agreement to ensure there are no penalties that could reduce your refinancing savings.

Frequently Asked Questions (Optional)

Does the calculator factor in property taxes or insurance?

No, this calculator focuses exclusively on loan principal and interest payments. For a comprehensive overview, consider adding estimated taxes and insurance to your monthly payment calculations separately.

Are the savings shown after taxes?

No, the savings are pre-tax. Consult a tax professional to understand how refinancing may affect your tax situation, especially if you deduct mortgage interest.

What if I make extra payments after refinancing?

Extra payments can further reduce your interest costs and payoff time. The calculator does not account for extra payments, so your real savings could be even higher if you pay more than the scheduled amount.