# Refinance Calculator

Does it make sense to refinance a mortgage or loan?

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There's more to consider when refinancing a mortgage or loan than just the interest rates. If securing a new loan requires that you pay upfront fees or points, are you going to hold the note long enough, so the new, lower payment makes up the difference in the up-front fees?

Further, if you want to calculate the actual savings, consider the loan's tax impact, if any, and the investment opportunity because of the lower payments.

This calculator accounts for all these possibilities.

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*Current Lender*(optional) - Name of lender for a printed report.*Current Loan Balance*- This balance is not the original loan amount. It is the current balance of the existing loan.*Periods Remaining Until Paid Off*- The number of scheduled payments remaining.*Annual Interest Rate*- Current interest rate for the loan.*Current Payment*- The calculator will calculate the loan payment for you if you uncheck the checkbox. Allow the calculator to calculate the payment if you want to reduce the term of the loan. Change the "Periods Remaining Until Paid Off" to reflect the new desired term. The calculator will calculate the adjusted payment amount (scheduled payment amount plus extra payment required) Note: do not include the escrow amount of the loan payment. Only include the principal and interest amount.*Current Payment Frequency*- The frequency at which payments are due.

*Possible Lender*(optional) - Name of the potential new lender for a printed report.*New Loan Amount*- New projected loan amount. This amount can be different than the current loan balance.*Number of Payments Due*- The term for the new loan.*Anticipated Annual Interest Rate*- New interest rate.*New Payment Amount*- If you uncheck the checkbox, the calculator will calculate the new payment amount. If you prefer entering a payment amount, you may do so by checking the option. After you review the "Results," you may click back to the financing tabs, and you'll be able to see the payment amount the calculator used if you had the calculator calculate the amount.*Expected Payment Frequency*- The payment frequency for the potential loan.*Loan Origination Points*- If the new loan is a U.S. mortgage, the lender may require that you pay "point" to receive the lowest possible interest rate. If so, enter those points here.*Miscellaneous Closing Costs*- Some loans, typically mortgages, have additional fees and closing costs. Enter those costs here.*Prepayment Penalty for Current Loan*- If the CURRENT loan has a prepayment clause that requires you to pay a fee if you pay the loan off early, enter the fee here. Even though the prepayment penalty is associated with the current loan, it's a cost you have to pay to obtain the new financing.

*Asset Being Financed*(optional) - For printed report.*Property Sold After*- The remaining number of payments or the new loan may be for 15, 20, or even 30 years. However, if you plan to pay off the loan (because you will sell the asset), enter the number of years. The calculator uses the sold after to calculate costs and interest paid.*Interest and Points Are*(optional) - Determines the tax impact of interest and points.*Maximum Interest Deduction*- The "Tax Cuts and Jobs Act of 2017" in the U.S. limits the amount of mortgage interest (and property tax) the mortgage holder can deduct from income taxes. Enter the limit here if applicable.*Projected Tax Bracket*(optional) - If you want to know the after-tax impact of refinancing, enter your marginal tax rate.*Inflation Rate*(optional) - If you want to know the inflation-adjusted impact of refinancing, enter your assumed inflation rate here. If the proposed new financing saves you $100 ever month, the savings, adjusted for inflation will be less. Why? Saving $100 the last month of a loan is not as valuable to you as saving $100 today.*Investment Rate*(optional) - If the payment for the proposed financing is less than the current financing, you can invest the difference. Enter your investment rate-of-return here.*If possible financing is greater, invest the difference*(optional) - If the proposed financing is greater than the debt being retired, what are you going to do with the difference? If you are going to invest the difference, answer "Yes."

## Doug Fowler says:

Well done, thank you for making a complicated subject easier.

I have made some notes in all caps for your consideration

By the time you sell after 26 years (LITTLE CONFUSED SINCE I USED 30 YEARS AS SALES DATE, IT APPARENTLY STOPPED COUNTING AT END OF MY LOAN PERIOD), you’ll have paid down $373,348 under your current loan, or $386,999 under the possible refinancing. The amounts used in this analysis are discounted to today’s dollars (adjusted for inflation). The assumed discount rate is 2.0%.

Your current financing will cost you $130,454 (reduced by a $42,960 tax benefit). The possible refinancing will cost you $119,072 (reduced by a $37,962 tax benefit). The cost for the possible financing includes $3,800 in miscellaneous closing costs. So considering just the differences between the two loans: after tax considerations, and other related closing costs you will SAVE $11,382 (NOT A BIG DEAL, BUT POSSIBLE CLARIFICATION …IF YOU TAKE POSSIBLE REFINANCE LOAN). However, the interest savings will increase your taxes by $0 due to the lost deduction. Now, since the payments are LESS under the proposed refinancing than it is under the current financing, you could invest this difference. If the difference in the payments is invested, you will have an estimated gain of $121,883 from the additional investment income.

Bottom line? Your total net SAVINGS will be $133,265. Why are you waiting?

THANK YOU FOR YOUR WORK – WELL DONE!

## Karl says:

Thank you for taking the time to write such constructive comments. I’ll incorporate them into the calculator when I put the finishing touches on it.

About the 26 years, what value did you enter for the "Sold after" on the general info tab? Other than that, the termination of point of the calculation, as I recall is the shorter term of the two financing options. But I need to check that.

## Ed. Lin says:

I am refinancing from 3.9 to approximately 2.5 percent on a 300000 balance. I can’t seem to enter the 2.5 percent. It is defaulting to 3.0. Is this a bug or am I doing something wrong?

Ed.

## Karl says:

Sorry for the problem. On the "Possible Financing" tab, you are trying to set "Anticipated Annual Interest Rate" to 2.5% and it won’t let you? I’m not seeing that problem.

Do you have the calculator set for U.S. dollars? Or perhaps you are using a different currency and that’s what is causing the problem?

## Ron says:

When using the Refinance Calculator – Is it worth it?, it won’t let me input a custom value for number of years until asset is sold. Even when I input say 10 years, then click on Next, the explanation keeps going back to 15 years.

## Karl says:

Sorry to say, I can’t duplicate the problem. Using the calculator with the values it loads with if I change only the "Property Sold After" to 10 years, I get this result:

"By the time you sell after 10 years, you’ll have paid down $58,966 under your current loan, or $100,000 under the possible refinancing."

Are you setting property sold after to 120 by any chance? I now see that I don’t mention that users need to enter the number of years rather a number of months. I’ll correct that.

## Ron Glines says:

This tool is very useful. I’m a mortgage loan officer and I use it frequently. However, I wish it allowed a different value for the “possible loan” vs the “current loan”. When a person refinances their house and they currently owe say 357,000, the new loan amount will always be higher (even if it’s a no cost loan) because the lender has to collect pre-paid interest, property taxes, and homeowner’s insurance. The new loan amount may be $360,000, depending on the day of the month the loan closes, when property taxes are due, and when the homeowners insurance policy renews. Of course, the borrower could elect to pay these pre-paid costs out of pocket at closing, but NOBODY ever does that. They all want to roll those costs into the loan. Thus, the new loan amount is always higher than the balance of the current mortgage. With a higher loan amount, the borrower doesn’t save as much on the new monthly mortgage payment, so there is less to invest. Maybe it’s not an apples to apples comparison, as you say in the error window, but it’s a real world example. Any chance you can incorporate this idea into the calculator?

Thanks

## Karl says:

Thank you. I’ll have to take a look at that. It may be a bug. I don’t recall having programmed that limitation.