Refinance Calculator: Compare Your Loan Options

Our refinance calculator helps you evaluate whether refinancing your current loan makes financial sense. Compare your existing loan with potential refinance options to see potential savings, new payment amounts, and break-even points. Make informed decisions about refinancing your mortgage, auto loan, or other debt with this comprehensive tool.

Modify the values and click the Calculate button to compare your current loan with refinancing options

Current Loan

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$
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New Loan

years
%
$
$
Refinance Analysis Results
Monthly Payment Savings:
$245.32
Break-even Point:
14 months

Loan Comparison

Current Loan New Loan Difference
Principal Balance $250,000.00 $250,000.00 $0.00
Monthly Payment $1,800.00 $1,554.68 -$245.32
Interest Rate 7.00% 6.00% -1.00%
Loan Term 20 years 20 years 0 years
Total Interest $182,000.00 $153,123.20 -$28,876.80
Total Cost $432,000.00 $408,123.20 -$23,876.80

Refinancing Costs

Points Cost:
$5,000.00
Closing Costs:
$1,500.00
Cash Out Amount:
$0.00
Total Refinancing Cost:
$6,500.00
Payment Comparison
Interest Comparison
Balance Over Time

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What is Loan Refinancing?

Loan refinancing is the process of replacing an existing loan with a new one, typically with more favorable terms. When you refinance, you're essentially paying off your current loan with the proceeds from a new loan. The goal is usually to secure better terms such as a lower interest rate, reduced monthly payments, or a different loan duration.

Refinancing can be applied to various types of loans, including:

  • Mortgage loans - The most common type of refinancing
  • Auto loans - To secure better rates or extend/shorten the loan term
  • Student loans - To consolidate multiple loans or get better rates
  • Personal loans - To reduce interest costs or monthly payments
  • Credit card debt - Often through balance transfers or debt consolidation loans

It's important to note that refinancing is different from debt restructuring, which typically occurs under financial distress and involves renegotiating delinquent debts to improve liquidity. Refinancing, on the other hand, is a strategic financial decision made to improve loan terms even when the borrower is not in financial difficulty.

How to Use This Refinance Calculator

Our refinance calculator is designed to help you make informed decisions about whether refinancing makes financial sense for your situation. Here's how to use it effectively:

Step 1: Enter Your Current Loan Information

Start by entering details about your existing loan. You can input information in two ways:

  • If you know your remaining balance: Enter your current loan balance and monthly payment
  • If you know the original loan amount: Enter the original loan amount, term, and time remaining

Don't forget to include your current interest rate to ensure accurate calculations.

Step 2: Enter New Loan Details

Next, input the details of your potential refinance loan:

  • New loan term: How many years you want for the new loan
  • New interest rate: The rate you expect to receive (check current market rates)
  • Points: Any discount points you plan to pay to reduce the interest rate
  • Costs and fees: Closing costs, application fees, and other expenses
  • Cash out amount: Any equity you want to extract during refinancing (enter 0 if none)

Step 3: Analyze the Results

After clicking "Calculate," review the comprehensive analysis:

  • Monthly payment savings: How much less (or more) you'll pay each month
  • Break-even point: How long it will take for savings to offset refinancing costs
  • Total interest savings: The long-term interest savings over the life of the loan
  • Loan comparison: Side-by-side comparison of current and new loan terms
  • Visual charts: Graphical representations of payments, interest, and loan balance over time

Step 4: Make an Informed Decision

Use the results to determine if refinancing makes sense for your situation. Consider factors like:

  • How long you plan to keep the loan (compared to the break-even point)
  • Whether the monthly savings justify the refinancing costs
  • If the total interest savings align with your financial goals
  • Whether you need access to cash through a cash-out refinance

Reasons to Refinance

Lower Your Interest Rate

One of the most common reasons to refinance is to secure a lower interest rate. When market rates drop significantly below your current rate, refinancing can lead to substantial savings. A reduction of just 1% in your interest rate can save you thousands of dollars over the life of your loan and decrease your monthly payment.

For example, on a $250,000 30-year mortgage, reducing your interest rate from 7% to 6% could save you approximately $160 per month and over $57,000 in total interest over the life of the loan.

Reduce Monthly Payments

If you're looking to improve your monthly cash flow, refinancing can help lower your monthly payments. This can be achieved by securing a lower interest rate or by extending your loan term. While extending your term may increase the total interest paid over the life of the loan, it can provide immediate relief to your monthly budget.

This strategy is particularly helpful for borrowers experiencing temporary financial constraints or those who want to free up cash for other financial goals like retirement savings or education funds.

Shorten Your Loan Term

Conversely, if your financial situation has improved, you might consider refinancing to a shorter loan term. For instance, switching from a 30-year to a 15-year mortgage typically comes with a lower interest rate and allows you to build equity faster and pay off your loan sooner.

While this option usually increases your monthly payment, it can dramatically reduce the total interest paid over the life of the loan. For example, refinancing a $250,000 loan from a 30-year term at 7% to a 15-year term at 6.5% could save over $150,000 in total interest, even though monthly payments would increase by about $400.

Convert Between Fixed and Adjustable Rates

Refinancing allows you to switch between fixed-rate and adjustable-rate mortgages (ARMs) based on your financial needs and market conditions:

  • Converting from ARM to fixed-rate: If you have an ARM and interest rates are expected to rise, or if you want payment stability, refinancing to a fixed-rate loan locks in your rate for the remainder of your loan term.
  • Converting from fixed-rate to ARM: If interest rates are falling or you don't plan to stay in your home long-term, switching to an ARM might lower your rate and monthly payments in the short term.

Access Home Equity (Cash-Out Refinance)

A cash-out refinance allows you to borrow against the equity you've built in your home. With this option, you refinance your existing mortgage for more than you currently owe and receive the difference in cash. Homeowners often use this strategy to:

  • Fund home improvements or renovations
  • Pay for major expenses like education costs
  • Consolidate high-interest debt
  • Build emergency savings
  • Invest in other properties or opportunities

Cash-out refinancing typically requires maintaining at least 20% equity in your home after the refinance. The interest rate on a cash-out refinance is usually lower than other forms of borrowing like personal loans or credit cards, making it an attractive option for accessing large sums.

Eliminate Private Mortgage Insurance (PMI)

If you initially put down less than 20% on a conventional loan, you're likely paying for private mortgage insurance (PMI). Once you've built up at least 20% equity in your home, refinancing can help you eliminate this additional monthly expense.

Similarly, if you have an FHA loan with mortgage insurance premium (MIP) that cannot be canceled (which is the case for most FHA loans originated after June 2013), refinancing to a conventional loan once you have sufficient equity can eliminate this ongoing cost.

Consolidate Debt

Refinancing can be an effective way to consolidate multiple debts into a single loan with a lower interest rate. By using a cash-out refinance to pay off high-interest debts like credit cards, personal loans, or auto loans, you can:

  • Simplify your finances with a single monthly payment
  • Potentially reduce your overall interest rate
  • Extend the repayment period for better cash flow
  • Possibly gain tax advantages (consult with a tax professional)

Types of Refinance Options

Rate-and-Term Refinance

A rate-and-term refinance is the most straightforward type of refinancing. It involves replacing your current mortgage with a new one that has a different interest rate, loan term, or both. The loan amount remains roughly the same as your existing mortgage balance (though closing costs can sometimes be rolled into the new loan).

This type of refinance is ideal when interest rates have dropped significantly below your current rate or when you want to change your loan term without cashing out equity. It typically offers the best rates and lowest costs compared to other refinance options.

Cash-Out Refinance

With a cash-out refinance, you take out a new mortgage for more than you currently owe on your home and receive the difference in cash. This option allows you to tap into your home equity while potentially improving your loan terms at the same time.

To qualify for a cash-out refinance, lenders typically require:

  • At least 20% equity remaining in your home after the refinance
  • Good credit score (usually 620 or higher)
  • Stable income and employment history
  • Debt-to-income ratio below 43% (though some lenders may allow higher)

Cash-out refinances usually come with slightly higher interest rates than rate-and-term refinances due to the increased risk to lenders.

Cash-In Refinance

The opposite of a cash-out refinance, a cash-in refinance involves bringing money to closing to pay down your loan balance when refinancing. Homeowners might choose this option to:

  • Qualify for better interest rates
  • Eliminate private mortgage insurance
  • Meet loan-to-value requirements for refinancing
  • Reduce their loan balance to qualify for certain loan programs

Streamline Refinance

Streamline refinances are simplified refinance programs offered for government-backed loans, including:

  • FHA Streamline Refinance: For existing FHA loans, offering reduced documentation and potentially no appraisal requirement
  • VA Interest Rate Reduction Refinance Loan (IRRRL): For VA loan holders, featuring simplified qualification and lower funding fees
  • USDA Streamline Refinance: For existing USDA loan borrowers, with reduced paperwork and costs

These programs typically have less stringent qualification requirements and lower closing costs than traditional refinances, making them attractive options for borrowers with government-backed loans.

Short Refinance

A short refinance is a transaction where the lender agrees to refinance the home for less than what is currently owed. This is typically offered to homeowners who are underwater on their mortgage (owing more than the home is worth) and at risk of foreclosure.

Unlike other refinance options, a short refinance involves the lender forgiving a portion of the debt. This option is relatively rare and usually only considered when it would be less costly for the lender than foreclosure.

No-Closing-Cost Refinance

With a no-closing-cost refinance, the lender covers the closing costs in exchange for a higher interest rate on the loan. While this option eliminates upfront expenses, the higher rate means you'll pay more over the life of the loan.

This type of refinance can be beneficial if you:

  • Don't have cash available for closing costs
  • Plan to sell or refinance again in a few years
  • Still achieve significant savings despite the higher rate

Refinance Costs and Fees

Typical Refinancing Costs

Refinancing isn't free—it typically costs between 2% and 5% of the loan amount. Understanding these costs is crucial for determining whether refinancing makes financial sense. Common refinancing fees include:

  • Application fee: $250-$500
  • Loan origination fee: 0.5%-1.5% of loan amount
  • Appraisal fee: $300-$700
  • Credit report fee: $30-$50
  • Title search and insurance: $700-$900
  • Recording fee: $25-$250 (varies by location)
  • Mortgage points: Each point costs 1% of the loan amount and typically lowers your interest rate by 0.25%
  • Prepayment penalty: Some existing loans charge a fee if you pay them off early

Break-Even Analysis

To determine if refinancing makes financial sense, calculate your break-even point—the time it takes for your monthly savings to offset the refinancing costs:

Break-even point = Total refinancing costs ÷ Monthly savings

For example, if refinancing costs $6,000 and saves you $200 per month, your break-even point would be 30 months (2.5 years). If you plan to keep the loan longer than the break-even point, refinancing may be worthwhile.

Our calculator automatically performs this analysis for you, showing exactly when you'll start seeing net savings from your refinance.

Tax Implications

Refinancing can have several tax implications to consider:

  • Mortgage interest deduction: Interest paid on mortgage debt (up to certain limits) may be tax-deductible if you itemize deductions
  • Points deduction: Points paid for a refinance are typically not fully deductible in the year paid but must be amortized over the life of the loan
  • Cash-out refinance considerations: Interest on cash-out amounts may only be tax-deductible if used for home improvements

Always consult with a tax professional about your specific situation, as tax laws change and individual circumstances vary.

When Refinancing May Not Make Sense

Short Remaining Loan Term

If you're already well into your mortgage term, refinancing might not be beneficial. Most interest is paid in the early years of a mortgage, so refinancing late in the term could restart the amortization schedule and potentially increase the total interest paid.

High Refinancing Costs

If the costs to refinance are too high relative to your potential savings, refinancing may not be worthwhile. Always calculate your break-even point and consider how long you plan to keep the loan.

Plans to Move Soon

If you plan to sell your home or relocate within a few years, you might not recoup the costs of refinancing. Generally, you should plan to keep your new loan beyond the break-even point to realize actual savings.

Minimal Interest Rate Improvement

The traditional rule of thumb suggests refinancing if you can reduce your interest rate by at least 1-2 percentage points. While smaller reductions can sometimes make sense (especially for larger loan amounts), minimal rate improvements may not justify the costs.

Impact on Overall Financial Goals

Consider how refinancing fits into your broader financial picture. For example, extending your loan term might reduce monthly payments but could delay other goals like retirement planning or becoming debt-free.

Refinancing Different Types of Loans

Mortgage Refinancing

Mortgage refinancing is the most common type of refinancing due to the large loan amounts and long terms involved. Even small interest rate reductions can lead to significant savings over time. When refinancing a mortgage, consider:

  • Current equity position in your home
  • Credit score and debt-to-income ratio
  • Current market interest rates
  • How long you plan to stay in the home
  • Whether you want to cash out equity

Auto Loan Refinancing

Auto loan refinancing can be beneficial if your credit score has improved or interest rates have dropped since you took out your original loan. Benefits may include:

  • Lower monthly payments
  • Reduced interest rate
  • Changed loan term (shorter or longer)
  • Opportunity to remove or add a co-signer

However, be cautious about extending an auto loan term, as vehicles depreciate quickly and you could end up "underwater" (owing more than the car is worth).

Student Loan Refinancing

Refinancing student loans can consolidate multiple loans and potentially secure a lower interest rate. However, refinancing federal student loans with a private lender means losing federal benefits such as:

  • Income-driven repayment plans
  • Loan forgiveness programs
  • Deferment and forbearance options
  • Federal student loan relief programs

Private student loan refinancing typically makes the most sense for borrowers with high-interest private loans or those with stable incomes who don't need federal loan protections.

Credit Card Refinancing

Credit card debt can be refinanced through balance transfer cards or personal loans:

  • Balance transfer cards: Offer low or 0% introductory APR periods (typically 12-21 months) for transferred balances, usually with a transfer fee of 3-5%
  • Personal loans: Provide fixed interest rates (typically lower than credit card rates) and structured repayment terms

Both options can save substantial interest costs compared to high-interest credit cards, but require discipline to avoid accumulating new debt.

Preparing for a Successful Refinance

Check Your Credit Score

Your credit score significantly impacts the interest rates you'll be offered. Before applying for refinancing:

  • Review your credit reports for errors
  • Pay down existing debts if possible
  • Avoid opening new credit accounts
  • Make all payments on time

For the best refinance rates, aim for a credit score of 740 or higher, though many loan programs accept lower scores.

Gather Documentation

Prepare the following documents to streamline the refinancing process:

  • Recent pay stubs (last 30 days)
  • W-2 forms and tax returns (last two years)
  • Bank statements (last two months)
  • Current mortgage statement
  • Homeowners insurance policy
  • Property tax bills
  • Proof of other income sources

Shop Around for the Best Rates

Interest rates and closing costs can vary significantly between lenders. To find the best deal:

  • Compare offers from at least 3-5 lenders
  • Consider banks, credit unions, online lenders, and mortgage brokers
  • Request Loan Estimates to compare costs accurately
  • Negotiate fees and rates with lenders
  • Consider relationship discounts with your current financial institutions

Lock Your Rate

Once you find a favorable rate, consider locking it in. Rate locks typically last 30-60 days and protect you from rate increases during the loan processing period. Some considerations:

  • Longer rate locks may come with fees or slightly higher rates
  • Ensure your lock period covers your expected closing timeline
  • Ask about "float down" provisions that allow you to benefit if rates decrease during your lock period

References and Resources

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