1. What is Mortgage Refinancing?

Mortgage refinancing involves replacing your existing mortgage with a new loan, typically to secure a lower interest rate, change the loan term, or access home equity. Comparing refinance options helps determine potential savings.

2. How Does the Calculator Work?

The calculator uses the standard mortgage payment formula:

Where:

• \( Principal \) — Loan amount in dollars
• \( Rate \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Loan term in months

Explanation: The formula accounts for both principal and interest payments over the loan term, with interest calculated on the remaining balance each month.

3. Importance of Comparing Refinance Options

Details: Comparing refinance options helps determine if the savings from a lower interest rate justify the closing costs and potential extension of your loan term.

4. Using the Calculator

Tips: Enter the new loan amount in dollars, monthly interest rate (annual rate divided by 12), and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert annual rate to monthly?
A: Divide the annual percentage rate (APR) by 12. For example, 6% APR becomes 0.5% monthly (6 ÷ 12 = 0.5).

Q2: What's included in the monthly payment?
A: This calculates principal and interest only. Your actual payment may include escrow for taxes and insurance.

Q3: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest. Longer terms lower monthly payments but increase total interest.

Q4: Should I refinance to a shorter or longer term?
A: Shorter terms save interest but require higher payments. Longer terms reduce monthly payments but cost more overall.

Q5: How do closing costs factor in?
A: Calculate your break-even point by dividing closing costs by monthly savings to see how many months it takes to recoup costs.