If you have a mortgage, and want a smaller payment, you might ask, “Should I refinance my mortgage?”
A mortgage refinance calculator can help you answer that question.
Mortgage calculators can help you figure out the math, but there’s more to refinance than just the numbers.
What is mortgage refinancing?
Mortgage refinance is when a homeowner decides to switch their current mortgage for a new one with better terms, typically to reduce their monthly payment and long-term costs.
Refinancing requires you to complete a new mortgage loan application, submit new supporting documents, and meet different eligibility requirements.
Many homeowners find the mortgage refinance process more streamlined than their first mortgage because they understand the process better this time.
How does mortgage refinance work?
When you refinance your existing mortgage, the new mortgage loan you receive pays off your first home loan altogether.
After that, you’ll continue to make monthly mortgage payments on your new loan until it is repaid or until you refinance it. You’ll still only have one monthly payment, it’s just on a new loan.
To estimate the amount of your new mortgage and help you decide whether you should refinance, take a few minutes to enter loan details into the mortgage refinance calculator below.
Is mortgage refinancing right for me?
The reasons homeowners choose to refinance their mortgage are personal and specific to their financial situation.
But, there are common reasons why a homeowner might want to refinance their current mortgage. These include:
- Better interest rates
- Reduced monthly mortgage payment
- Get a fixed-rate mortgage (and/or get rid of an adjustable-rate one)
- Get rid of mortgage insurance
- Cash-out refinance
- Change loan providers
Get a better interest rate
Lower interest rates mean spending less each month on monthly payments and homeowners can potentially save thousands of dollars on their mortgage with a lower interest rate.
If rates have dropped or your credit score has improved since your first mortgage process, you could be eligible for an interest rate better than the one you’re currently paying.
Reducing the monthly mortgage payment
In addition to lower interest rates, you might be able to reduce your monthly mortgage payments by lengthening your mortgage term.
For example, going from a 10-year amortization period to a 20-year amortization period could decrease your monthly payments while freeing up cash in your monthly budget.
An extended amortization period plus a better interest rate could mean significantly smaller monthly mortgage payments.
Adjustable rate to a fixed-rate mortgage
With an adjustable-rate mortgage, the amount of money you pay each month can change, depending on the adjustment period.
For some adjustable rate mortgages, homeowners get a new interest rate—based on the current market—each year. If rates drop, you can save money, but when rates increase, you can find yourself paying more than you want to.
Switching to a fixed-rate mortgage allows homeowners to lock in a specific rate and pay only that rate for the lifetime of their loan—no matter what the markets do.
Eliminate mortgage insurance
If you’ve been paying into your mortgage for a while, you may have built up enough equity in your home to stop paying mortgage insurance.
20% equity in your home is required to refinance your mortgage and stop paying mortgage insurance.
Many lenders require mortgage insurance when a homeowner has less than 20% equity in the home. Eliminating mortgage insurance can put that money back in your wallet.
Cash-out refinance mortgages are popular refinance options for many homeowners who have built up some equity in their homes.
By tapping into the equity, homeowners get a lump sum cash payment that they can use for any purpose they want. For example, many homeowners use money from cash-out refinance to consolidate loans, pay for education, add to retirement savings, or finance home upgrades or renovations.
It’s a good idea to estimate your new monthly mortgage payments by using a mortgage refinance calculator to ensure that your new monthly payments are something you can safely afford.
Change loan providers
If you aren’t enjoying the level of service your current mortgage providers deliver, you might consider a mortgage refinance as a way to switch lenders. Alternately, some borrowers may decide to work with a bank rather than a private mortgage lender.
How much will it cost to refinance?
Because refinancing your current mortgage requires an entirely new application process, homeowners should budget for closing costs.
While the amount you’ll pay will be specific to your mortgage details, such as your mortgage amount, credit score, personal finances, etc., many homeowners can expect to pay between $5,000 and $10,000 in mortgage refinancing closing costs.
Common mortgage refinancing costs can include:
- Home appraisal fees
- Lawyers fees
- Title insurance
- Land transfer tax
- Loan origination fees, among others
Many homeowners find that the short-term costs associated with mortgage refinance are worth the long-term benefit.
Additionally, the IRS allows for some mortgage refinancing costs—such as mortgage interest—to be deducted when homeowners file their income taxes.
Mortgage refinance calculator
If you’re a homeowner and you’re curious what your monthly payments would be if you refinanced your mortgage, plug your new loan amount and the interest rate you think you’ll receive, along with your loan term, into the mortgage calculator below.
Don’t forget to take a few minutes and try different combinations to see how various loan terms, interest rates, and loan amounts can impact your monthly payment.
You can also use this as a mortgage cash-out refinance calculator by entering in the larger loan amount you want. This allows you to estimate how much you could receive as cash-back, in addition to what your monthly payments might be.
Refinancing next steps with AAA Banking
Deciding to refinance your current mortgage requires careful consideration of your financial situation.
Start by using AAA Banking’s mortgage refinance calculator* to estimate how much you could save if you refinance your current mortgage.
Reach out to the trusted loan officers at AAA today, if you have questions about refinancing, want to know the interest rate you could realistically receive, or want to start the refinance application process.
The loan officers at AAA Banking are here to walk you through each step of the mortgage refinance process and answer any questions you have along the way.
*The figures entered on the input page of this calculator are for hypothetical purposes only. You should enter figures that are appropriate to your individual situation. The results provided by this calculator are also intended for illustrative purposes only and accuracy is not guaranteed. This calculator is not intended to offer any tax, legal, financial or investment advice and does not assure the availability of or your eligibility for any specific product offered, nor does this calculator predict or guarantee the actual results of any product. The terms and conditions of products offered will differ and may affect the results of the calculator. Please consult with qualified professionals to discuss your situation. The final APR may differ from the APR in the above results due to additional fees that may be applicable.
Photo by Mikhail Nilov