When you work with a lender for a refinance you hope to leverage their expertise to help land savings on your monthly mortgage obligations. Nonetheless, you shouldn’t arrive to your first phone or face-to-face meeting completely unprepared. A mortgage refi calculator is one of those tools that can educate you as well as focus you on which elements of your loan refi need to be addressed. They are easy to find online and many reputable lenders provide one on their websites.
Let’s take a look at the common features of a loan refinance calculator so your meeting with a refi lender can be as productive as possible.
Refi calculator versus a mortgage calculator
When searching online for the right calculator, make sure to search for a “refinance” calculator. There is some overlap between the two calculators, but the main difference is the refi calculator is trying to compare your current situation with a new one. The mortgage calculator is simply showing you your monthly and overall costs.
Once you get your new costs from a loan refi calculator, it’s not a bad idea to put those numbers in a pure mortgage calculator to double check your math.
Mortgage calculators also often have features that show you how much money you spend over the life of a loan, whereas the refi calculator is comparing two loans and giving you an idea of how many months it will take before you can recoup the costs associated with refinancing.
Mortgage calculators can help borrowers determine which refinance product will save them the maximum amount of money (Photo/MaxPixel)
Mortgage refinance calculators— the two main components
A good refi calculator will have two basic sections, one dealing with amounts of money and time associated with the loan, and one dealing with amounts of money associated with lender paperwork and services.
The first section is fairly easy to populate. It will cover things like:
Current interest rate—This may not appear on your monthly bill, but it’s easy to call your lender and find out. Or, check your original loan paperwork where it should be called out up high and clearly. Our preferred lenders have websites where details like this are easy to find in your account profile.
New Interest rate—This percentage will come from your online research or from the lender themselves. While it may not be exact, you should have a rough estimate of what your new rate could be.
Current monthly payment—This refers to how much your monthly mortgage payment is right now.
Remaining balance—This is the amount of principle you still owe on the loan. This is the cost of the home minus your down payment and anything else you’ve already paid minus the interest. It may feel like you’ve spent, say, $100,000 on your home already, but much of your monthly payments go toward interest.
Years left on current loan | New loan term—These two fields are fairly self-explanatory. If your current loan is a 30-year, for instance, do not simply put 30 in that field. They are asking you how many years are still left to be paid. For the new loan term field, play around with typical timeframes like 30-, 20- and 15-year loans. See how much your monthly costs get altered.
The second section of the refinance calculator will cover things that impact the loan processing. You’ll need to get specific information for these fields from your lender, but a simple online search can at least get you some ballpark numbers.
Points—One point represents 1% of the cost of your mortgage. Remember, the more you buy, the more your monthly payment goes down. However, it could take years to recoup the costs. So, if you plan to be in your home over the long haul, try a few different numbers in this field.
Application Fees—Lenders may have a basic application fee to cover their overhead, but that is separate from a slew of other fees (see below). It also may be separate from document preparation fees, which refer more to the filing of records with the courts or relevant bodies of government. Those filings usually have taxes and transfer fees associated with them, too. Your lender will have to itemize these costs for you in a Good Faith Estimate, or explain to you which fees are included in any overall fee category.
Attorney Costs—Yours and theirs, potentially. Ask your lender if these will be necessary in your situation.
Appraiser Fees—These cover the cost of sending someone to the home to estimate the market value of your home.
Inspection Fees—These cover the cost of a certified inspector who will determine the quality of your home and what may need repair.
Start number crunching now. Even though your results won’t be exact, you’ll have ballpark figures going into any meeting that may produce a homerun when it comes to saving you money on a house.
Does the math make sense?
After all the math is done, you should have a strong idea about how much you’ll save each month, and potentially over the life of your loan.
You may also need to calculate your “break even” point, especially if you are going to buy points. In general, the break even point is the point at which you recoup your costs associated with your refinance. In terms of specific numbers, here’s how you figure it out when buying points.
- Find out the cost of your points. Remember, it’s 1% of the cost of your mortgage.
- Find out (from the calculator) the amount of monthly savings.
- Divide the cost of the points by the monthly savings. The result is the number of months it will take before you begin saving more than you spent.
$3,000 in points / $50 monthly savings = 60 months
So, if you may be moving in 5 years or less, you may barely break even on the refi. But if you plan on spending a couple more decades in your home, you are looking at significant savings over the course of the loan. On a $200,000 30-year loan, even a 1-point purchase could save you more than $10,000 over the life of the loan (assuming an APR of 4.25%).
When not buying points, your break even point will be different. In this scenario, you’ll be simply comparing the impact of the new interest rate to the old one. It will take longer to reach that break even point, but if your monthly costs are reduced in the meantime, you still win out in the end.