# How to Use a Simple Mortgage Calculator

Using a simple mortgage calculator can help you answer the question “Should I Refinance my Mortgage.” Just because you’re getting the lowest refinance rates from today’s best mortgage lenders doesn’t automatically mean that you’re saving money. Here’s how using a simple mortgage calculator can save you thousands of dollars from unnecessary lender fees and avoid a costly mistake.

## Using a Simple Mortgage Calculator

You can use a simple mortgage calculator to learn about your home loan’s amortization schedule. Mortgage amortization describes the process of paying down the balance of your home loan. Mortgage loans are front-loaded with interest, so in the early years of paying down the balance the majority of your payment goes to pay the lender’s finance charges.

Over time this gradually reverses and more of your payment goes to the principal mortgage balance, building equity in your home at a faster rate. Using a simple mortgage calculator to figure out your payment including annual taxes and insurance can show you how much cash you’re saving and what that lower refinance rate is actually costing you.

### Is Refinancing Your Home Worthwhile?

The first step in using a simple mortgage calculator is to enter your loan balance, refinance rate, and optionally your annual taxes and insurance.

You can enter the values below and click “Calculate Now” to determine your new payment amount.

### Simple Mortgage Calculator

Loan Amount: Years: Mortgage Rate:

Annual Taxes: Annual Insurance:

Monthly Payment =

Is your monthly payment going down? The difference between your old mortgage payment and the new one that you’ve just calculated including taxes and insurance is your monthly savings.

### Should I Refinance My Mortgage?

Now that you’ve figured out if there are any savings to be had refinancing your home loan, you can figure out if paying for a new mortgage is worthwhile. You do this by approximating your break-even point for recouping your total out-of-pocket expenses.

Start by adding up all of the closing costs found on page two of your Good Faith Estimate, including the loan origination fee. You can approximate the amount of time it’ll take you to break even by dividing this total by the amount you’re saving each month.

This is only an approximation because it doesn’t take changes in your term length into account. If you shorten your term length you’ll break even faster. Choosing a longer term length means you’ll never break even thanks to the additional finance charges from those extra years.

Dividing your total closing costs by the amount you’re saving each month tells you the number of months it’s going to take you to break even. If the amount of time is acceptable to you than paying to refinance your home makes sense.

### Get a Better Deal Refinancing Your Mortgage

You can reduce your out-of-pocket expenses by shopping smartly for the lowest refinance rates AND fees. Page two of your Good Faith Estimate makes it easy to do this if you go about requesting mortgage quotes the right way.

Before doing anything else it’s important to make sure your finances are in order by reviewing your credit reports for errors. Fair Credit laws require credit bureaus to give you free access to the information in your credit reports once per year. You can get your free credit reports by visiting the government mandated website AnnualCreditReport.com.

Once you’ve reviewed the contents of your credit reports if you find errors you can dispute the incorrect information online with each credit bureau. Be sure and allow enough time for corrections to be reflected in your credit score before requesting refinancing quotes.

### How to Shop for the Lowest Refinance Rates

Are you hesitant to give a lender your Social Security number when shopping for refinance rates? It’s true that your credit score will take a hit when lenders pull your credit but that’s the only way to get an accurate quote when shopping for refinance rates. The trick is to limit all of your lender credit inquiries to a two week period and you’ll only get dinged once.

Next, make sure that the quotes you request are zero point quotes. You’ll find that many lenders quote refinance rates that include discount points first to make their interest rates seem more attractive.

Discount points are a fee you pay to buy down your mortgage rate. With refinance rates at historically low levels most homeowners won’t gain anything by paying this fee.

If you’d like to see how paying discount points affects your monthly payment there is a table on page three of your Good Faith Estimate; however, you should start your comparison shopping with zero discount point refinance quotes.

Start comparison shopping from a variety of banks, credit unions, lenders and brokers. You’ll find that the fees on page two of your good faith estimate, like the origination fee, vary widely from one type of lender to the next.

The less you pay at closing, the faster you’ll break even recouping your out-of-pocket expenses and the sooner you’ll benefit from your lower mortgage rates.

Pay close attention to that loan origination fee found on page two of your good faith estimate. Many loan officers will tell you that one percent is standard; however, I’ve reviewed several community based credit unions that charge as little as \$400 for their loan origination fee.