Calculating Refinance

Mortgage Payment Formula:

\[ New\ Payment = \frac{New\ Principal \times Rate \times (1+Rate)^n}{(1+Rate)^n - 1} \]

New Monthly Payment:

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1. What is Mortgage Refinancing?

Mortgage refinancing is the process of replacing your existing mortgage with a new loan, typically to secure a lower interest rate, change the loan term, or convert equity to cash. The refinance payment calculation helps determine if refinancing makes financial sense.

2. How Does the Calculator Work?

The calculator uses the standard mortgage payment formula:

\[ Monthly\ Payment = \frac{Principal \times Rate \times (1+Rate)^n}{(1+Rate)^n - 1} \]

Where:

\( Principal \) — Loan amount in dollars
\( Rate \) — Monthly interest rate (annual rate ÷ 12)
\( n \) — Total number of payments (term in years × 12)

Explanation: The formula accounts for both principal and interest payments over the life of the loan, with more interest paid earlier in the loan term.

3. Importance of Refinance Calculation

Details: Calculating your new payment helps determine if refinancing will save you money. Consider closing costs and how long you plan to stay in the home when evaluating refinance options.

4. Using the Calculator

Tips: Enter the new loan amount, annual interest rate (as a percentage), and loan term in years. The calculator will show your estimated monthly principal and interest payment.

5. Frequently Asked Questions (FAQ)

Q1: Should I refinance my mortgage?
A: Refinancing may make sense if you can get a significantly lower rate, need to change your loan term, or want to convert equity to cash. Compare your savings with closing costs.

Q2: How much can I save by refinancing?
A: Savings depend on your current rate, new rate, loan amount, and remaining term. Use this calculator to compare your current payment with potential new payments.

Q3: What's not included in this calculation?
A: This shows principal and interest only. Your actual payment may include property taxes, insurance, and PMI if applicable.

Q4: Does a shorter term always mean higher payments?
A: Yes, shorter terms mean higher monthly payments but less total interest paid over the life of the loan.

Q5: How do points affect my payment?
A: Points (prepaid interest) lower your rate but increase closing costs. Each point typically costs 1% of the loan amount and lowers your rate by ~0.25%.