Mortgage Refinance Calculator: Should I Refinance? (2024)

What this mortgage refinance calculator does

If you're thinking of refinancing your mortgage, it's probably because you want to save money. There are two ways to save money by refinancing:

  • Reducing the monthly payment.

  • Paying less interest over time.

It's unlikely, but you may be able to accomplish both: reduce the monthly payment and pay less interest over time. But in most cases, you'll do one and not the other:

  • Pay more every month but pay less interest over time.

  • Pay less every month but pay more interest over time.

Or a refinance could result in a higher monthly payment and more interest over time.

The results of this calculator explain which one of the above categories your refinance would fit into.

The calculator includes a colorful slider that displays the years remaining on your current loan. It calculates how much you would save (or not), year by year, by refinancing.

MORE: Mortgage refinancing: How and why

How to interpret your results

The calculator asks if your priority is reducing the monthly payment or the interest you'll pay in the next few years.

You'll get similar results, phrased differently, either way you answer. If you say your priority is a lower monthly payment, the answer mentions the payment first and interest second. If you say your priority is paying less interest over time, the answer mentions interest first and the monthly payment second.

If both the monthly payment and interest will be reduced

You have the green light to refinance if both the payment and interest over time will go down. Speaking of green, the slider and the bars above it are green in this scenario (after a short segment of red).

If the monthly payment will go up but you'll save on interest

When you shorten the loan term — from 30 years to 15 years, for example — you almost always end up with a higher monthly payment, even with a lower interest rate. That's because you'll pay principal (the amount you borrowed) over fewer months. You'll pack more principal into each payment.

But you're also borrowing for a shorter time, so you pay less interest.

The slider and the bars above it are orange in this scenario (after a segment of red).

If the monthly payment will go down but you'll pay more interest

When you refinance a mortgage and start over at the beginning of a new 30-year loan, you're likely to get a lower monthly payment. But all those years of interest payments will add up.

This refinance might meet your needs if you'll sell the home within a few years, or if you need rock-bottom monthly payments for a while to meet other needs (to pay tuition, for example).

Much of the slider and the bars below it may be red in this scenario, indicating that you'll pay more total interest and closing fees during that period.

Or, the slider's color might change from red to green and then to orange in this scenario, indicating that you'll save money for a while — before the total payments pile up.

If both the monthly payment and interest will be higher

If you're not going to save money either way, you probably don't want to refinance. But you might be compelled to refinance anyway — as part of a divorce settlement or to switch from an adjustable-rate mortgage to a fixed-rate loan, for example.

The slider and the bars under it are red in this scenario.

Using the slider

As you move the slider left and right, the calculator updates your total savings over the indicated number of years. The calculator includes interest paid, plus the estimated closing costs.

The slider starts in the red, indicating that the closing costs exceed the interest savings at first.

When the slider shifts from red to green, it means that the interest savings total more than the closing costs over that number of years.

When the slider shifts from red to orange, it means that the interest savings total more than the closing costs during that period — but your monthly payments will be higher. This usually happens when you shorten the loan term, say from 30 years to 15 years.

If the slider shifts from red to green to orange, it means the interest savings keep adding up, but the accumulated principal-and-interest payments, plus the estimated closing costs, eventually cost more than the original loan.

The breakeven period

When you refinance, you typically pay closing costs. During the period when those costs exceed your interest savings, the slider is red. The end of the red segment indicates the breakeven period, when the interest savings exceed the closing costs.

If you plan to sell your home within a few years, pay attention to the breakeven period. You'll lose money on the refinance if you sell before breaking even.

Should you refinance again before breaking even on a previous refinance? The answer depends on how much more you will save. When deciding whether to refinance again, disregard the closing costs on the original refinance. You've spent that money and you can't unspend it.

Learn more about the refinance process

Once you’ve decided that refinancing makes sense for you, learn more about how to refinance your mortgage. Also, explore the hidden fees to watch out for when refinancing your loan.

MORE: How a cash-out refinance works

Mortgage Refinance Calculator: Should I Refinance? (2024)

FAQs

How to calculate if it's worth it to refinance? ›

To calculate the value of refinancing your home, compare the monthly payment of your current loan to the proposed payment on the new loan. Then use an amortization schedule to compare the principal balance on your proposed loan after making the same number of payments you've currently made on your existing loan.

What is a good rule of thumb for refinancing? ›

It's a good rule to refinance if you can reduce your interest rate by at least 1%. Mortgage rates naturally rise and fall. But, when the economy struggles, mortgage rates usually fall. Just because interest rates are low, though, doesn't mean it's the best choice for you to refinance.

At what point is it not worth it to refinance? ›

Moving into a longer-term loan: If you're already at least halfway through the loan term, it's unlikely you'll save money refinancing. You've already reached the point where more of your payment is going to loan principal than interest; refinancing now means you'll restart the clock and pay more toward interest again.

How to determine if refinancing makes sense? ›

There are many factors you should consider when determining whether to refinance. These include your current mortgage size, the new mortgage you would be taking out, the current home value, the current interest rate of your loan, the new interest rate and the closing costs.

At what percentage should I refinance my mortgage? ›

Popular advice is to have at least 20% equity in your home before refinancing so you can qualify for better rates and get rid of private mortgage insurance if you have it.

Is it worth refinancing for 1% less? ›

As a rule of thumb, experts often say that it's not usually worth it to refinance unless your interest rate drops by at least 0.5% to 1%. But that may not be true for everyone. Refinancing for a 0.25% lower rate could be worth it if: You are switching from an adjustable-rate mortgage to a fixed-rate mortgage.

What is the 80 20 rule in refinancing? ›

Conventional refinance: For conventional refinances (including cash-out refinances), you'll usually need at least 20 percent equity in your home (or an LTV ratio of no more than 80 percent). This also helps you avoid private mortgage insurance payments on your new loan.

How do I get the best rate for refinancing? ›

  1. Improve your credit score. ...
  2. Compare refinance rates. ...
  3. Buy points to lower your interest rate. ...
  4. Determine which loan term is best. ...
  5. Choose a fixed interest rate. ...
  6. Consider the loan amount. ...
  7. Pay closing costs upfront.
Mar 28, 2024

How low will mortgage rates go in 2024? ›

Mortgage rate predictions 2024

The MBA's forecast suggests that 30-year mortgage rates will fall into the 6.5% to 6.9% range throughout the rest of 2024, and NAR is predicting a similar trajectory. But Fannie Mae thinks rates could stay in the low 7% range this year.

What is not a good reason to refinance? ›

Refinancing to lower your monthly payment is great unless you're spending more money in the long-run. Moving to an adjustable-rate mortgage may not make sense if interest rates are already low by historical standards. It doesn't make sense to refinance if you can't afford the closing costs.

What is the negative side of refinancing? ›

The main benefits of refinancing your home are saving money on interest and having the opportunity to change loan terms. Drawbacks include the closing costs you'll pay and the potential for limited savings if you take out a larger loan or choose a longer term.

Should I refinance if interest rates drop? ›

A rule of thumb says that you'll benefit from refinancing if the new rate is at least 1% lower than the rate you have.

How to calculate if refinance is worth it? ›

Subtract your new, refinanced monthly mortgage payment from your current monthly payment to determine your monthly savings. Determine your tax rate, then subtract it from the amount in step one to determine your after-tax rate. Multiply your monthly savings by your after-tax rate to obtain your after-tax savings.

How do you know if it is the right time to refinance? ›

You may consider refinancing if any of these scenarios apply to you: Mortgage rates are lower than when you closed on your current mortgage. Locking in a lower interest rate will lower your monthly payment. Your financial situation has improved.

What is the rule of thumb for refinancing? ›

The basics of the 1% rule of thumb is that if you reduce your current interest rate by 1% or more on a refinance, you'll save money. The good news is that's true. The even better news is that you can potentially save a lot of money even if you can drop your mortgage rate less than 1% of many loans.

How much of a rate difference is worth refinancing? ›

If you have a mortgage with a higher balance and rate, a drop of 0.5% interest could be worth refinancing, according to Dell. "For a lower balance, rate and term refinance, it may be at least 1% or more to be worth your time and money," Dell says. It's also important to consider how long you plan on living in the home.

What is a good loan-to-value ratio for refinance? ›

A good LTV ratio to aim for with most mortgage loans is around 80% or lower. An LTV in this range can help you secure a loan and boost your chances of avoiding mortgage insurance, saving you thousands on your mortgage.

Can I refinance if I owe more than it's worth? ›

In some cases, they find themselves 'underwater,' or owing more on their mortgage loan than their home is currently worth. In this situation, refinancing can be nearly impossible, because lenders expect the borrower to have built up some equity before they'll agree to a refinance.

Does it ever make sense to refinance at a higher rate? ›

When you need cash to pay for home improvements or repairs that might increase the value of your home, it may make sense to accept a higher rate.

References

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