Your Guide to Mortgage Refinancing
Our comprehensive refinance calculator helps you determine if refinancing your mortgage makes financial sense. Simply enter your current loan details and potential new loan information to see your potential savings. This free refinance mortgage calculator provides valuable insights to help you achieve your financial goals—whether you’re looking to lower monthly payments, adjust your loan term, eliminate mortgage insurance, change your loan program, or secure a better interest rate.
What Is Mortgage Refinancing?
Mortgage refinancing involves replacing your existing home loan with a new one that better suits your current financial situation. When you refinance, funds from your new mortgage pay off your current loan.
Similar to your original mortgage application process, you’ll need to gather documentation including recent pay stubs, W-2s, and bank statements. You’ll also need specific information about your existing mortgage:
- Current remaining loan balance
- Number of years left on your loan
- Current interest rate
This information helps you and your lender calculate the optimal refinance option for your specific financial circumstances.
Understanding Refinance Costs
What Does It Cost to Refinance?
Typical refinance closing costs range from 2% to 6% of your loan amount. These fees vary based on your location, loan type, loan amount, and lender.
Most lenders offer the option to incorporate refinance closing costs into your new loan balance, increasing the total amount borrowed. For best results, apply with multiple lenders and request official Loan Estimates to compare costs and potential savings. Working closely with lenders on a cost-benefit analysis will help you determine if refinancing is worthwhile.
Common Refinance Fees
When using a refi calculator, consider these typical fees associated with refinancing:
- Lender fees
- Credit report fee
- Appraisal costs
- Title search, report, and insurance
- Attorney fees (at signing)
- Transfer taxes (varies by state)
- Escrow fees
- Flood certification
- Recording fees
- Property tax fees
- Homeowners insurance costs
- Prepaid interest
How to Calculate Refinance Savings
To accurately evaluate refinance savings, compare your current monthly payment with the projected payment on your new loan. Then use an amortization schedule to compare the principal balance on your proposed loan after making the same number of payments you’ve made on your existing mortgage. Both the monthly payment and principal balance of the new loan should be lower. Enter your specific information into our refinance rates calculator above for a detailed breakdown of potential savings.
Is Refinancing Worth It?
Generally, refinancing is beneficial when the reduction in total interest paid over the life of the loan exceeds the cost of acquiring the new loan.
Regularly monitor refinance rates and use our free refinance mortgage calculator to ensure refinancing aligns with your financial goals.
Calculate the Breakeven Point
Use our mortgage refinance calculator to determine your breakeven point—the number of months it takes for savings to exceed refinancing costs. Divide this timeframe (in months) by 12 to find out how many years of payments are needed before realizing actual savings from refinancing. If you plan to sell your home before reaching this breakeven point, refinancing may not be financially advantageous.
Understanding Refinance Amortization
Mortgage payments are amortized, meaning your total monthly payment remains consistent, but the portions allocated to principal and interest vary with each payment. Amortization schedules are structured so you pay more interest than principal during the first half of your loan term. Refinancing resets your mortgage amortization schedule, which may reduce the amount of principal you pay each month. If you’re planning to sell soon or have been paying your mortgage for more than half the term, be sure to use our loan refinance calculator to understand the implications.
Reasons to Refinance Your Mortgage
Refinancing can help you achieve various financial objectives. Here are the most common reasons homeowners consider using a refinance calculator and pursuing a mortgage refinance:
Secure a Lower Interest Rate
Reducing your interest rate is the most popular motivation for refinancing. If you qualify for a lower rate than your current mortgage, refinancing can decrease your monthly payments and potentially save thousands in interest over the life of your loan.
Change Rate Types: Adjustable vs. Fixed
Refinancing allows you to switch loan types. For example, if you have an adjustable-rate mortgage (ARM) with an impending rate increase, you can transition to a more predictable fixed-rate mortgage.
Eliminate Mortgage Insurance
When purchasing a home with less than 20% down payment, you typically pay private mortgage insurance (PMI) for conventional loans or mortgage insurance premium (MIP) for FHA loans. If you’ve built at least 20% equity through appreciation or regular payments, you may refinance to eliminate mortgage insurance and reduce your monthly payment.
Pay Off Your Loan Faster
In most cases, shortening your loan term helps you pay off principal more quickly. While shorter terms often mean higher monthly payments, they require fewer overall payments, reducing lifetime interest costs. Additionally, shorter-term loans (like 15-year fixed) typically offer lower interest rates than longer-term options (like 30-year fixed).
You might also accelerate loan repayment by switching to bi-weekly payments, which many lenders accommodate. This payment schedule equals one extra payment annually and can reduce a 30-year loan by 51 months, ultimately decreasing your interest payments. Confirm bi-weekly payment availability with your lender before finalizing your refinance.
Lower Your Monthly Payments
Refinancing typically resets your mortgage term to 15 or 30 years. Your current principal balance is spread across these additional payments, reducing your monthly obligation. If you have available funds to apply to your existing mortgage amount, consider a cash-in refinance to further decrease monthly payments. This approach reduces your balance, which is then distributed across additional payments.
Access Cash from Your Equity
With sufficient home equity, you might consider a cash-out refinance. This option allows you to refinance for more than your current loan balance and keep the difference for expenses like home improvements or consolidating high-interest debt. Note that cash-out refinances typically have higher interest rates. In the “advanced settings” of our refinance calculator, you can convert the tool to a cash-out refinance calculator.
Frequently Asked Questions About Refinancing
How Often Can You Refinance?
You can refinance your home multiple times, though some lenders impose their own restrictions. Always use a refinance calculator for each potential refinance to understand the long-term financial impact.
What Credit Score Do You Need to Refinance?
Homeowners with credit scores of at least 620 may qualify for refinancing, but scores of 740 or higher receive the most favorable refinance rates. Higher credit scores generally mean lower interest rates, so maintaining good credit is beneficial. Calculate your estimated savings at various interest rates to determine if it’s worth improving your credit score before refinancing.
How Much Equity Is Required to Refinance?
If you’re hoping to eliminate mortgage insurance, expect a minimum equity requirement, typically 20%. Otherwise, refinance equity requirements vary by loan program and property type. Generally, rate-and-term refinances have fewer equity restrictions compared to cash-out refinances.
What Is a No-Closing-Cost Refinance?
No-closing-cost refinances simply incorporate closing costs into the loan amount. While you won’t pay these costs out-of-pocket at closing, this approach typically increases your total loan amount and monthly payments.
How Refinancing Works
The refinancing process typically follows these steps:
- Select a refinance type: Choose from options including rate-and-term refinance (updating your rate and loan term), cash-in refinance (applying more money toward your equity), cash-out refinance (accessing your home equity), or streamline refinance (simplifying the process to lower monthly payments).
- Compare refinance rates: Use our refinance rates calculator to determine if current rates would help achieve your refinancing goals. Contact lenders directly or find local lending professionals.
- Submit your application: After applying, your lender will provide initial disclosures outlining loan terms. Review and sign these documents.
- Lock your interest rate: Work with your lender to secure your rate when you believe it’s most favorable.
- Complete a home appraisal: Most lenders require an updated property appraisal.
- Close your loan: Review closing documents and disclosures, pay any applicable closing costs, and sign to finalize your new mortgage.
Use our mortgage refinance calculator today to see if refinancing could help you achieve your financial goals!