Refinancing is an attractive option to many borrowers.
This is especially true when the market rates are currently
lower than the rate on your existing loan, or if you
have an adjustable rate mortgage and want to move to
the stability of a fixed rate mortgages.
There are many other good reasons for wanting to refinance.
One of these is to consolidate your debts or to make
home improvements. This works by borrowing more than
your current balance and applying the extra money to
pay off debts or pay for the improvements you seek.
Another valid reason for seeking a refinance is to shorten
the term of your repayment along with the lower interest
rate you will receive.
Using an online refinance calculator can help you decide
if this is the ideal time to refinance. Most calculators
will require you to enter the monthly payment amount
on your current loans, the amount of the new loan you
are seeking, your new interest rate, the new loan’s
term, and the estimated closing costs for the loan.
After you have entered this information, the calculator
will tell you several numbers that can be useful in
deciding whether refinancing now is right for you. The
first is the new monthly payment for your refinance
loan. The second is the monthly savings from refinancing.
The third is the amount of time it will take you to
break even from the transaction. After this period is
over, you will start saving money from your refinance.
Note: The calculator does not take into account the
savings from not having to pay high interest rates on
debt paid off through the refinance, such as credit
card debt. The monthly savings number only compares
your new mortgages monthly payment to your old monthly
payment. Similarly, the break even period only accounts
for comparisons between the two mortgages.
For this reason, the calculator is much more useful
for those wishing to refinance to get a lower interest
rate or to reduce their payment term. In any case, it
is good to know how long it will take you to break even
from your refinance and the difference in monthly payments
after the refinance goes into effect.