How This Mortgage Refinance Calculator Helps?
This mortgage refinance calculator helps you to determine the benefits you get by refinancing your mortgage. Such benefits include:
- Taking advantage of lower than normal interest rates. It makes better sense to refinance your mortgage when the interest rates are on a decline.
- Converting your adjustable mortgage to a fixed-rate mortgage. If your current mortgage rate is an adjustable one, you continue to face the risk of higher interest rates. Refinancing your mortgage to the fixed-rate type helps you to lock it into a lower rate, in anticipation of a probable adverse interest rate change on your ARM.
- Capitalizing on your improved current credit score. Refinancing your mortgage may be a better long-term option for you if your credit score has currently improved, when compared to what it was at the time of accepting your original mortgage rate.
- Reducing payments by stretching your mortgage term. If you wish to reduce the current amount payable against your monthly mortgage, consider refinancing your mortgage to prolong your current mortgage term. But remember, on a long term basis, you may have to pay a larger amount in interest on that extended term.
- Shortening your mortgage term. Conversely, some homeowners may even find it preferable to shorten their mortgage term through refinancing. Though, that implies an automatic increase in their monthly payments; characteristically, shorter term mortgages carry lower interest rates. Likewise, they also pay lesser interest over the complete life of their mortgages.
- Debt consolidation or equity encashment. Mortgage refinancing is recurrently used for debt consolidation or the encashment of your home equity. As a homeowner, that is achieved by borrowing over and above what you actually owe on your current mortgage. As your refinancing costs can quickly add up, a refinance cash-out deal may not always be the best option for you. At lendmemoney.com, our mortgage refinance experts are available to offer you free advice on what would be your best options.
The Break-Even Point Of Your Mortgage
Having calculated your refinancing costs, you can now determine the number of years it would take you to reach a break-even point with your new monthly repayment plan, or to fully recover your mortgage refinancing costs. Break-even point is the date on which you actually start to gain from your new lower payments, instead of simply covering your mortgage refinancing fees. To work out the break-even point for your mortgage, follow the method given below:
- To obtain your monthly savings: subtract your new refinanced monthly mortgage payment from your current monthly payment.
- To obtain your after-tax rate: subtract your current tax rate from the above total.
- To obtain your after-tax saving: multiply your monthly savings by your after-tax rate.
- To determine the number of months it will take you to cover up the entire cost of your mortgage refinancing: add up the total fees, plus the closing costs of your new mortgage refinancing. Then, divide this amount by your monthly after-tax savings. This gives you the break-even point.
For example, if you need to refinance a current $300,000, 20-year, fixed-rate mortgage at let’s say 6% with a new revised 4% interest rate, your refinancing will reduce the original monthly mortgage payment from $2,149.29 to $1,817.94, thereby yielding you a monthly saving of $331.35. Assuming that a tax rate of 22% is applicable, the after-tax rate would be 0.78, which would result in an after-tax saving of $258.45 ($331.35 x 0.78 = $258.45).
Finally, if your refinancing costs add up to $9,000, then it will take you about 35 months to balance out the costs of refinancing ($9,000/$258.45 = 34.8).