Mortgage Refinance Calculator – Forbes Advisor – Forbes

February 26, 2022 By admin

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Updated: Nov 9, 2021, 12:26pm
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Mortgage refinancing is when a homeowner takes out another loan to pay off—and replace—their original mortgage. A mortgage refinance calculator can help borrowers estimate their new monthly mortgage payments, the total costs of refinancing and how long it will take to recoup those costs.
Mortgage refinancing is when you replace one home loan with another in order to access a lower interest rate, adjust the loan term or consolidate debt. Refinancing requires homeowners to complete a new loan application and may involve an appraisal and inspection of the home. Lenders also rely heavily on an applicant’s credit score and debt-to-income ratio when deciding whether to extend a new loan.
In addition to the qualification process, refinancing costs can be substantial, totaling up to 6% of the original loan’s outstanding principal. So it’s important to consider whether a refi is the right move for you.
Consider refinancing your mortgage if you want to:
Before you decide to refinance your mortgage, evaluate the cost of refinancing and whether it’s worth the long-term savings. In general, refinancing fees total between 3% and 6% of the outstanding principal on the original mortgage loan. This includes lender and attorney fees, title search and insurance costs and closing costs, like document preparation. Borrowers should also prepare to cover any necessary appraisal and inspection costs as required by the lending institution.
Some lenders offer “no-cost” refinancing that helps borrowers reduce up-front refinancing fees. Under this option, the borrower generally absorbs the fees through a higher interest rate or pays them over time as part of the loan principal. Either way, mortgage refinancing is never truly free.
Once you calculate the cost of refinancing, determine how many years it will take to break even with the new monthly payment—or recover the costs of refinancing your mortgage. This break-even point is the date on which you can actually benefit from your new lower payment, rather than covering refinancing fees. To calculate your mortgage’s break-even point, follow these calculations:
For example, if you’re refinancing a $300,000, 20-year, fixed-rate mortgage at 6% with a new 4% interest rate, refinancing will reduce your original monthly mortgage payment from $2,149.29 to $1,817.94—yielding a monthly savings of $331.35. Assuming a tax rate of 22%, the after-tax rate would be 0.78, which results in an after-tax savings of $258.45 ($331.35 x 0.78 = $258.45). Finally, if you encounter $9,000 in refinancing costs, it will take almost 35 months to recoup the costs of refinancing ($9,000/$258.45 = 34.8).
When considering whether to refinance your mortgage, also consider how long you plan to stay in your home. The length of time you intend to own a piece of property can impact whether refinancing is worth the expense.
For example, if you only anticipate owning the home for a few more years, you likely won’t save enough on mortgage payments to justify the added costs of refinancing. Alternatively, it may make more sense to refinance your forever home because you’ll have longer to recoup the cost of refinancing.
Forbes Advisor’s mortgage refinance calculator lets you estimate your new monthly mortgage payment using the terms of your current and refinanced loan. Based on that information, it also calculates how much you’ll save in monthly payments and interest over the life of the loan. You can use the calculator to total the costs of refinancing and how many months it will take to recover those costs (your break-even point).
To make these calculations, our tool evaluates this data:
The costs of refinancing a mortgage can add up quickly, so it’s important to research which lenders offer the most competitive interest rates and fees. To find the best refinancing terms, start by looking at your current lender. Likewise, if you already have a relationship with another bank, it can likely streamline the application process and provide more favorable terms.
If you’re getting a conventional mortgage, nationally chartered or community banks are usually the best places to start. Shop around at a variety of large banks, local banks and credit unions to ensure you get the best terms for your needs and credit history. Also keep in mind that if you want to refinance quickly, you may want to consider an alternative lender, like an online non-bank company—although this generally comes with a higher interest rate.
To get the best refinancing rates, pay attention to these factors before applying:
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If you have at least 20% equity in your home and a strong credit score, refinancing your mortgage is a great way to lower your interest rate—especially if rates are on the decline. Likewise, refinancing can help you reduce your monthly mortgage payment by extending the term of the loan. Refinancing your mortgage is generally a good option if you can decrease your interest rate by 1% to 2%.
Evaluate whether you should refinance your mortgage by calculating how much you can save each month as well as the total cost of refinancing. Then, calculate your break-even point to determine how long it will take to recoup those costs. Finally, consider whether you plan to stay in your home long term—if not, the cost of refinancing may not be worth it.
Estimates suggest over 50% of mortgage refinance denials are due to inadequate credit scores or debt-to-income ratios. Another 17% of applications are denied due to a lack of collateral, meaning the lender doesn’t think your home is worth the full loan amount. Increase your chances of approval by evaluating your credit history, debt-to-income ratio and home value before applying.
Kiah Treece is a licensed attorney and small business owner with experience in real estate and financing. Her focus is on demystifying debt to help individuals and business owners take control of their finances.