Many homeowners naturally wonder whether they could refinance and save money on their home mortgage. If you’re among them, a good refinance calculator might help you figure out how much you could save each month and whether it would be a smart decision for you to refinance.
How a Refinance Calculator works
A refinance calculator works in a similar way as other types of mortgage calculator tools. To use a refinance calculator, you’ll first need to enter the original amount that you borrowed on the loan you want to refinance. You’ll also need to enter your interest rate and term on your current loan. The refinance calculator will also ask for your current mortgage balance and the interest rate and term on your new home loan after you refinance.
To get even better results from a refinance calculator, you can enter any prepayment penalty on the loan that you want to refinance, the closing costs on your new loan and the points, if any, that you want to pay to lower your interest rate. These extra fields are optional; the calculator should still be able to calculate your results without this additional information.
Refinance Calculator shows savings
The results from a refinance calculator will show you whether or not you may be able to save by refinancing. The calculator won’t make a decision for you, but it will tell you the difference in your monthly home loan payment before and after you refinance and how long you would need to keep your new mortgage to break even on the closing costs if you decide to refinance.
It’s important to realize that if you refinance you might save money each month in the short term, but have to pay more over the long term. That’s because if you refinance, your monthly payment might be lower, but you may have to make that payment for more years.
The bottom line is that the decision whether to refinance depends largely on how long you intend to keep your home. If you plan to move soon, it might not make sense to refinance. But if you plan to keep your home for a while, it might be more sensible.
A good refinance calculator can help you get a rough idea of whether it would make sense for you to refinance, but you also should discuss your situation with a lender before you make a definitive decision.