If you have an older loan with a higher interest rate, you're probably wondering how much you could save with a mortgage refinance. By trading your old loan for a new one, you're told, you can score a better interest rate and a lower monthly payment. And depending on your loan details, it's even possible to pay your loan off faster.
But, will you actually save money by refinancing? If your current interest rate isn't that great, then you probably will. Still, your final savings depends on more than your interest rate; it can also hinge on the size of your loan, your credit score, and even the amount of equity you have.
Still, there are other instances where refinancing might leave you better off, too. If your credit has improved since you took out your initial mortgage, for example, you may be able to qualify for a better deal. Or maybe you prepaid your mortgage enough to get the private mortgage insurance (PMI) removed, and want a loan with a lower rate, too. Whatever the reason, you may be able to save money and shorten your repayment timeline by refinancing.
How Much Can You Save with a Mortgage Refinance?
Fortunately, figuring out how much you can save with a mortgage refinance is fairly easy with the help of a mortgage refinance calculator. By using the calculator to compare your old loan to a new one, you can determine your savings and decide if refinancing is worth it.
Refinancing Case Study #1
To illustrate how this type of savings could look, we created a few case studies for comparison.
To start things off, let's assume a couple, the Smiths, bought a $300,000 home in 2008. Let's also assume the couple came up with a 20 percent down payment and locked in their rate at 8 percent APR. In that case, this couple's mortgage payment (including just principal and interest) would run around $1,761 per month on a thirty-year loan.
With interest rates near all-time lows, however, the Smiths could refinance into a better loan product, save money, and pay their home off faster. After inputting their old mortgage information, the Smiths would find they could score a brand new fifteen-year mortgage at 4 percent for almost $100 less each month ($1,636). That's right; their new monthly payment would be lower, yet they would actually pay their house off almost eight years sooner.
Refinancing Case Study #2
Here's another example. Let's say a family, called the Bryants, purchased their dream home in 2012. At 6 percent interest, they got a decent rate. Still, buying their "dream home" meant borrowing a full $400,000 after putting down 20 percent.
This is where you find out that, the more you refinance, the more you can save. With a $400,000 loan at 6 percent interest, the Bryant's monthly payment (including P&I) would be around $2,398. Ouch.
Let's say they refinance into another thirty-year loan at today's low rates. With a brand new thirty-year mortgage at 4 percent, this family's monthly payment could drop down to just $1,831, leading to more than $500 in savings each month. The downside here is that they'll be starting a thirty-year mortgage over. On the flipside, however, this family could expect to save $77,264 in interest while they have a mortgage.
Refinancing Your Mortgage: How to Decide
The key to learning how much you can save with a mortgage refinance is pouring over the details and comparing your options – both from your old loan and any new loan you might qualify for. This is where a mortgage refinance calculator will come in handy; once you enter your loan details, it will do the heavy lifting for you.
Once you run the numbers, you can determine whether the money you save will be worth your time – even after accounting for any fees involved in the mortgage process. Here's the good news: When you sign up to get mortgage refinance quotes from LendingTree, you'll receive offers from several lenders who might help you qualify. And with several quotes to consider, it will be easier to compare loans and terms to find the best fit.
Depending on your credit and your current loan terms, you could save a little or a lot with a new loan. At the end of the day, it depends on an array of individual loan details that pertain to your current mortgage, and the type of mortgage and rates you might qualify for.
If you're stuck in a home loan you're not happy with, running the numbers on a potential refinance can help. You have nothing to lose by doing so, but plenty of savings to gain by taking that next step.