Refinance Calculator
Check if switching your loan saves money.
When Should You Refinance?
Refinancing involves replacing an existing loan with a new one, typically to take advantage of lower interest rates. A general rule of thumb is to consider refinancing if you can lower your interest rate by at least 1% to 2%.
The Break-Even Point
Refinancing isn't free. You usually have to pay closing costs, which can range from 2% to 5% of the loan amount. The "break-even point" is the time it takes for your monthly savings to exceed these upfront costs. If you plan to move before reaching this point, refinancing may not be worth it.
Reasons to Refinance
- Lower Monthly Payment: Reduce your monthly burden by getting a lower rate or extending the term.
- Shorten Loan Term: Switch from a 30-year to a 15-year mortgage to pay off debt faster and save on total interest.
- Switch Rate Type: Move from an Adjustable-Rate Mortgage (ARM) to a Fixed-Rate Mortgage for stability.
- Cash-Out: Tap into your home equity for large expenses like renovations (Cash-Out Refinance).
Risks to Consider
Extending your loan term to lower payments might increase the total interest you pay over the life of the loan. Always compare the total lifetime cost, not just the monthly payment.