Refinance Calculator (2024)

Use the refinance calculator to see if is it worth it to refinance and how much does it cost to refinance a loan. You can apply this tool as a refinance savings calculator, as you will get the answer for how much will I save if I refinance a personal loan?

In the following article, we explain the refinance definition or what does refinance means, and you will learn why do people refinance or when refinance is a good idea. Besides, you will learn what is a cash-out refinance and how to apply this free refinance calculator.

What does refinance mean?

Refinancing is the replacement of an existing debt obligation with another debt obligation under different terms, typically intending to obtain a better financial circumstance for the borrower.

Why do people refinance? – Common types of refinance programs

Now when you know the refinance definition, it's time to ask why it is worth it to refinance. There might be multiple reasons why a refinance might be a good option, depending on the financial need of the borrower. The most common types of refinance are:

  • Rate and term: The rate and term program is the most common refinancing option where you can lower the monthly installment resulting from a lower interest rate.

  • Term reduction: With this refinance program, you can shorten the loan term, which is an excellent way to reduce the total interest charged on your loan.

  • Cash-out refinance: If you would like to obtain some cash, refinancing your current loan with a larger new loan and taking the difference between your old loan and new loan in cash might be a good option for you. You can use the received cash, for example, in debt consolidation or home renovations.

When to refinance?

In correspondence with the refinance programs, refinancing might be a good idea in the following situations:

  • Your credit has improved, or you've repaid other debts: Borrowers with good or excellent credit (690 or higher FICO) and a low debt-to-income ratio have a better chance to obtain loans with lower interest rates.
  • You need lower payments: By extending your repayment term, you can lower the monthly payment and improve your monthly budget. You can use the extra cash to repay higher-cost debts (i.e., debt avalanche or debt snowball) or reach some savings goal.
  • You want to pay off the loan faster: If you've reached a higher monthly budget permanently (e.g., through salary raise), you can refinance to a shorter-term loan and reduce your total interest charges.
  • You want to switch your rate type: By switching from a variable to a fixed rate, you can keep your budget more consistent and plan your finance better.
  • You want to avoid a balloon payment: Some loans require a large payment at the end of the loan term, which you can avoid by refinancing the loan beforehand.

How to refinance a loan?

We already explained when does it make sense to refinance. Now, let's focus on the question how to refinance a loan?:

  1. Set your goal: As we explained above, there might be multiple reasons behind refinancing a loan.
  2. Find the best refinance rate.
  3. Pre-qualify for a new loan: Apply for the loan with several lenders for having multiple options for comparing rates and terms.
  4. Compare the cost of the different refinancing options: You can use our refinance calculator for the comparison. For example, you can see if refinancing can lower your monthly payments or save you money in the long term.
  5. Choose a refinance lender.
  6. Lock your interest rate. By locking the interest rate, it cannot change before the loan closes.
  7. Use the new loan to pay off your current loan.
  8. Close on the loan. Check your account to ensure there is no balance on your first loan to avoid additional fees.
  9. Start making payments toward the new loan. Most lenders allow you to set up automatic, recurring payments from a checking account.

How to use the refinance calculator?

You can use our free refinance calculator to find out how much will I save if I refinance. You can it by following the below steps:

1. Current loan

In the first section, you need to give the details of your current loan that you would like to refinance.

You have two options to run the estimation: You can use the remaining loan term or the monthly payment as well.

  • Balance left on the loan – You can give the original loan amount or the outstanding balance of the remaining loan.
  • Due date – Set the date according to the balance previously set.
  • Payment – The monthly installment.
  • Remaining loan term – The remaining or the original loan term.
  • Interest rate – The annual interest rate.
  • Compound frequency (advanced mode).

2. Loan refinancing

In this section of our refinance savings calculator, you need to add the details of the new loan you'll use for a mortgage refinance:

  • New due date – The date of the first payment of the new loan.
  • New loan term – Input the new loan term.
  • New interest rate – What is the new interest rate?
  • Origination fee – An upfront fee as a percentage of the new balance.
  • Cost of refinancing – How much does the refinancing cost?
  • Cash in/out – Give this option if you are about to have some cash out (positive sign) or cash in (negative sign).
  • Compound frequency (advanced mode).

3. Payment summary

In this section, you can compare the old and the new loan, which can support your decision. In addition, you can follow the progression of balances of the two loans in a chart and check the schedule of both loans.

FAQ

When does it make sense to refinance?

The short answer to this question is that, if you can reduce your current interest rate by at least 1 percent, it might make sense to refinance your current loan because the lower interest will generate substantial savings.

How long does a refinance take?

The total amount of time it takes to refinance can range from three days to four weeks. Since the 2008-2009 financial crisis, the process might take longer as regulations and lending standards became tighter.

How much lower should the interest rate be to refinance?

The decreasing interest rate typically makes refinancing your existing loan favorable. While financial experts recommend at least a 1% lower interest rate to refinance, the rule of thumb is that refinancing is a good idea when you can reduce your interest rate by 2% or more.

Disclaimer

You should consider the refinance calculator as a model for financial approximation. All payment figures, balances, and interest figures are estimates based on the data you provided in the specifications that are, despite our best effort, not exhaustive.

For this reason, we created the calculator for instructional purposes only. Still, if you experience a relevant drawback or encounter any inaccuracy, we are always pleased to receive useful feedback and advice.

I'm an expert in personal finance and loan management, specializing in refinancing strategies and tools. With years of experience in the field, I've helped countless individuals navigate the complexities of refinancing their loans to achieve better financial outcomes. My expertise extends to understanding the nuances of interest rates, loan terms, and the impact of refinancing on monthly payments and overall savings.

Refinancing a loan can be a strategic financial move that offers various benefits depending on individual circumstances. Let's delve into the concepts covered in the article you provided:

  1. Refinance Definition: Refinancing involves replacing an existing debt obligation with another under different terms, typically to improve the borrower's financial situation.

  2. Reasons for Refinancing:

    • Rate and Term Refinance: Common option to lower monthly payments by securing a lower interest rate.
    • Term Reduction: Shortens the loan term to reduce total interest charges.
    • Cash-Out Refinance: Provides cash by refinancing with a larger loan and taking the difference in cash, often used for debt consolidation or home renovations.
  3. When to Refinance:

    • Improved credit or debt repayment, leading to better loan terms.
    • Need for lower payments or desire to pay off the loan faster.
    • Switching from variable to fixed-rate or to avoid a balloon payment.
  4. How to Refinance a Loan:

    • Set goals for refinancing.
    • Find the best refinance rate.
    • Pre-qualify for a new loan with multiple lenders.
    • Compare costs using a refinance calculator.
    • Choose a lender and lock in the interest rate.
    • Use the new loan to pay off the current one.
    • Close on the loan and begin making payments.
  5. Using the Refinance Calculator:

    • Input details of the current loan (balance, due date, payment, etc.).
    • Add details of the new loan (new due date, term, interest rate, fees, etc.).
    • Compare old and new loan details, and review payment summary for decision-making support.
  6. FAQs:

    • Factors to consider when determining if refinancing makes sense, such as interest rate reduction.
    • Timeline for the refinance process, ranging from three days to four weeks.
    • General guideline of at least a 1% lower interest rate for refinancing, with potential savings increasing with a 2% or more reduction.
  7. Disclaimer: The refinance calculator is an approximation tool for financial planning, and actual figures may vary. Feedback and advice are welcome for improvements.

Understanding these concepts and utilizing tools like the refinance calculator can empower individuals to make informed decisions about their loans, ultimately improving their financial well-being.

Refinance Calculator (2024)
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