Do you have a mortgage? Is there something about its terms and conditions that make you uncomfortable or uncertain? Are you hoping to lower your monthly payment?
What's in this article?
If you answered yes to one or more of these questions, there’s no better time than now to use a refinance mortgage calculator.
With this tool, you’ll quickly determine if you can save money and improve your financial circumstances by refinancing your current loan.
Let’s break down what it means to refinance, how to prepare, and how a refinance mortgage calculator can help you.
What does it mean to refinance?
Refinancing is when a homeowner secures a new mortgage to replace their current home loan. If you’re interested in going down this path, it’s imperative to first learn more about the pros and cons.
The Potential Pros
- Get a lower interest rate
- Pay off your loan faster
- Lower your monthly payment
- Or cash out equity for other expenses
The Potential Cons
- You may not break even
- You may not qualify
- Your monthly payment could increase
- An appraisal is required
- It may be a time-consuming process
Along with the above, remember that the refinance process varies based on the lender, your financial circumstances, and the type of loan. For example, you may be most interested in an FHA streamline refinance, which could be simpler and faster than a conventional refinance.
How to prepare for a refinance?
If you’ve decided in favor of refinancing your mortgage, it’s time to prepare accordingly. There are five basic steps you can take to ease any stress and anxiety that you’re feeling.
- Set short and long-term goals: Are you refinancing to save money over the life of your loan? To reduce your monthly payment? To switch to a provider with better customer service? Knowing your short and long-term goals allows you to choose the right type of loan and lender.
- Crunch the numbers: On the surface, all signs may point toward you refinancing your mortgage. However, you won’t know for sure until you crunch the numbers. From your monthly payment to closing costs, you need to know the numbers inside and out. This helps eliminate the risk of a future financial surprise.
- Review your finances: Your personal finances will impact whether you qualify for a refinance loan, along with the terms and conditions. Review your finances with an eye toward your income, credit history, credit score, and debt load. Also, if you have a home equity loan or home equity line of credit, consider how it will impact your ability to proceed.
- Collect your paperwork: By collecting and organizing the necessary documentation upfront, you reduce the risk of hiccups that can cost you time and money. At the very least, you’ll need two years of personal tax returns, two years of W-2s or 1099s, and two months of bank statements. Your lender may require additional financial documents, so make sure you’re ready to provide them.
- Prepare your home for the appraisal: Your lender will send an appraiser to your home before approving your refinance request. The lender does so to learn more about the value of your property. The more equity you have in your home, the better chance there is of obtaining the lowest possible interest rate.
These may not be the only steps you have to take to prepare for a refinance, but they’ll put you on the right track.
Is refinancing right for you?
There are times when refinancing your mortgage is a good idea.
There are also times when you’re better off standing pat. The following are some situations in which it makes sense to refinance your loan.
- You have a high interest rate: Maybe you have a high interest rate because you only had “fair” credit when you purchased your home. Perhaps interest rates were simply higher when you made your initial transaction. Or you could have a variable interest rate that’s making it difficult to budget. Regardless of the reason for your high rate, refinancing may allow you to lower it.
- To pay off your loan sooner: For instance, if you have 25 years remaining on a 30-year mortgage, you can’t see the light at the end of the tunnel. However, if you refinance to 15 years, you can shave 10 years off your repayment period.
- Lower your monthly payment: There are many reasons why you may want to lower your monthly payment, such as if your income and/or expenses have changed or you want to invest more in your retirement. By refinancing into a longer term at a lower rate, you can reduce your monthly obligation.
What is a mortgage refinance calculator?
A mortgage refinance calculator is exactly what it sounds like. It’s a calculator that you use to determine your monthly payment — after refinancing — based on a variety of factors.
If all the numbers check out, My Perfect Mortgage makes it easy for you to connect with a lender. You can then discuss the finer details of your current mortgage, as well as what you want to accomplish by refinancing.
How does a refinance calculator work?
Even if you’ve never used a refinance mortgage calculator, it’ll only take a few minutes to “run the numbers” for various scenarios.
There are four basic inputs used to calculate your monthly payment:
- Loan term: 15, 20, or 30 years.
- Balance left to pay on mortgage: the amount of money that you’re financing.
- Interest rate: fixed interest rate based on your credit rating, down payment, assessed value, and other factors.
- Cash out: input a number if you want to receive cash out while refinancing, such as for a home improvement project.
Don’t be shy about playing with the numbers to determine what does and does not work for you. For example, if you want to lower your monthly payment, compare both 20 and 30 year mortgage terms.
Through the use of a refinance mortgage calculator, you can confidently decide if refinancing your current loan is in your best interest.
My Perfect Mortgage has the tools you need to feel confident in your decisions.
When you’re ready to take action, we’re here to guide you. It only takes a few minutes for us to connect you with the perfect lender for your refinance.