Refinancing your mortgage is a big move that can reduce your payments or give you access to cash.
Whether you're refinancing to save money or tap into your home equity, you need to start by knowing the basics — how much you'll be paying each month and what you'll owe over the life of the loan — so that you can plan your finances accordingly.
CNBC Select has a mortgage refinancing calculator to help. Below, we explain how to use the calculator, what you can learn from the results and a couple of other factors to consider if you're deciding whether to refinance.
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How to use this calculator
First, you'll want to input the following information into the calculator:
Monthly payment: How much you pay on your existing mortgage each month
Loan amount: The total amount of cash you took out
Years remaining on loan: The amount of time you have left on your existing loan
Property value: Your home's market value
Loan term: The length of time you’ll be paying your mortgage back and the structure of your rate. For example, most mortgage borrowers have a 30-year fixed-rate term.
Next, the calculator will estimate your rate based on the current market average and select lender offerings, as well as what you'd likely pay in closing costs — usually 2% to 6% of the loan amount.
What you can learn from using this calculator
You can glean several important pieces of information from this calculator:
- Monthly savings: You'll see how much less you'll be paying each month if you refinance
- Total savings: You'll receive an estimate of how much you'll save in interest over the life of the loan
- New monthly payment: The calculator will estimate your new monthly payment
What is a break-even point?
It’s not free to refinance: You typically have to spend about 2% to 6% in closing costs.
If you’re refinancing to save money, you’ll want to use the calculations to determine your break-even point — the threshold where you’ll be saving more than you’re spending to refinance. If you think you’ll sell the house before you reach this point, chances are it’s not worth it to refinance.
Here’s the equation you should use to figure that out.
- Closing cost ÷ savings per month = break-even point in months
Say it costs you $4,000 to close on the refinance, and you’d save $400 per month afterward. Your breakeven point would be 10 months.
- 4,000 ÷ 400 = 10 months
That means you’d have to be in your house for more than 10 months after you refinance before you start saving.
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Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every mortgage article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of mortgage products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
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