Are you looking for ways to save on your monthly bills, exploring options to pay off your mortgage faster or wanting to access the equity in your home? Whether you heard it from your neighbor, family or friends, refinancing your mortgage may help you do any and all of these things. With the help of a refinancing calculator, you can see if refinancing is the right option for you.
What is refinancing?
Refinancing is when you replace your existing mortgage loan with a new one. There are a lot of reasons to make this change. Some of the most common reasons are to lower your monthly mortgage payment, reduce the amount of interest you pay or shorten your mortgage term in order to pay off your home sooner.
How does a refinance calculator work?
If you’re on the fence about refinancing, it may be helpful to first calculate how much it could impact your payment using our refinancing calculator. To calculate your potential savings, scroll to the bottom of the page and simply plug in some of your basic mortgage information like the initial amount of your mortgage, its term in years, the number of monthly payments you’ve already made and your current interest rate.
Next, the calculator will provide a new term and new interest rate that you can adjust. If you’re looking for recent interest rates, you can check our mortgage rate table, which is updated regularly. Finally, you can input the estimated value of your home. If you’re not sure what that number is, you can use our home estimator tool.
Then, once all the information is in place, the calculator will automatically compare your current mortgage with a refinanced mortgage. As a reminder, these numbers are just estimates to help you with your decision.
When does it make sense to refinance a mortgage?
Many homeowners choose to refinance because it could save them money in both the short and long term. When you use our refinance calculator, the numbers may surprise you. Once the calculator compares the two loans, you can instantly see how much your monthly payment might change.
1. Lowering your monthly payments
Refinancing is probably the most common tactic when you want to lower your monthly mortgage payments. One way to do this is by spreading your mortgage loan out over a longer period of time. For example, if you have 25 years left on your current 30-year mortgage and you refinance your balance to a new 30-year mortgage, your monthly payments would lower because your mortgage would be spread out over 30 years instead of 25. But keep in mind that you’ll pay more in interest over the life of your loan.
If you plan to move in a few years, switching to an adjustable-rate mortgage (ARM) may be an option. An ARM typically offers a lower interest rate for a set period of time, which equals a lower monthly payment.
2. Spending less on interest by switching mortgage types
If you’re looking to save some money on interest and plan to stay in your home for a while, refinancing from an ARM to a fixed-rate mortgage can help you save on interest. Homeowners often switch from an ARM to a fixed-rate mortgage because the interest rate on an ARM can go up over time, which would increase monthly payments. Fixed-rate mortgages have steady principal and interest payments, but your overall payment can fluctuate with changes in property taxes or homeowners insurance.
3. Paying your loan off faster
When refinancing your home, you may be able to get a mortgage with a different mortgage term. The term is how many years you need to make all the payments on your mortgage, often 15 or 30 years. Changing to a shorter term can help you to pay off your mortgage quicker than you may have originally planned — paying down your mortgage in a shorter amount of time means you can own your home faster, while paying less in total interest.
It’s important to remember that if you opt for 15-year mortgage, for example, you’ll likely have a higher monthly payment. Still, many people will take on the higher monthly payment so they can own their home sooner.
4. Using your equity to access cash
Home equity is the difference between the value of your home and the amount you owe to your lender. To utilize your home equity, a cash-out refinance option allows you to pay off your current mortgage and create a new one, allowing you to keep part of your home’s equity as cash to cover expenses, such as paying for an education or home improvements, or to consolidate higher-interest debt.
A cash-out refinance allows you to use the equity in your home to get funds. This replaces your existing mortgage and there are no restrictions when it comes to using your money.
Find out of refinancing is right for you
Clearly, there are a lot of advantages to refinancing your mortgage, saving money among them. If you want to find out how much you might save on your monthly payment and on interest over time, see if refinancing your home is the best option. Then, consider discussing your options with a Home Lending Advisor in your area. You can also click the button below to start an application right away and be that much closer to saving on your mortgage.