If you’re considering mortgage refinancing and want to know if a new home loan is the right decision, using a mortgage rates calculator can help. Many financial advisors will tell you not to refinance unless your new mortgage rate is at least two percent lower than your existing rate; however, a simple mortgage rates calculator exposes this for the bad advice that it is. Here are several tips to help you decide if refinancing is right for your financial situation with a simple mortgage rates calculator.
Mortgage Rates Calculator Basics
Working with a mortgage rates calculator is pretty simple. Plug in your loan amount, interest rate, and loan term and it will spit out your new payment amount. How can you use this to decide if a new home loan makes sense? Instead of relying on an old wives’ tale like the two percent rule of mortgage refinancing, it makes more sense to base your decision on the cost and savings of the new home loan. Every home loan has closing costs and fees associated with it that cut into any potential savings you may realize from refinancing. The mortgage rates calculator shows you how long it will take to recoup these expenses with your new, lower payment.
Mortgage Refinancing Scenario #1
Here’s an example to show you how to use a basic mortgage rates calculator. Suppose for the sake of this example you are refinancing your home for $315,000. The broker is charging you an origination fee of 1.5% meaning that you’ll have to pay $4,725 to close with a mortgage rate of 6.0%. In this example plug the loan amount and new mortgage rate into your mortgage rates calculator and choose a fixed rate, thirty-year loan term.
The mortgage rates calculator determines your monthly payment amount of $1,888 and can display an amortization schedule showing how your home loan is paid down. The previous interest rate in this example was 6.75%, which means the old payments were $2043. Mortgage refinancing in this scenario yields a savings of $155 per month. (Subtract the new payment from the old to determine savings $2043-$1888=$155) That’s a savings of $1860 per year!
Before you can realize this savings from the new home loan you need to recoup the $4,725 you paid the broker along with any other closing costs you are required to pay. To determine the amount of time it will take you to recoup your expenses simply divide your total costs for the new home loan by the amount you’re saving each month. In this example the broker fee is costing us $4,725 so if we divide by the savings we determined from our mortgage rates calculator. ($4,725/$155 = 30 months / 12 months in a year = 2.5 years)
If you’re comfortable with the amount of time it will take to recoup your expenses then the new home loan probably makes sense in your situation. As you can see from the previous example we’ve debunked the two percent rule of mortgage refinancing; however, did you know it’s possible to cut hundreds of dollars from your payment by avoiding hidden markup?
You can learn more about cutting hidden markup and junk fees when refinancing your home by checking out my free Underground Mortgage Refinancing Videos.
Here’s a quick sample to get you started by exposing one of your mortgage broker’s dirty secrets.