If you’re considering a refinance, you’re probably doing so in the hopes that the refinance will help you out financially. Either you’ll take a cash out option and use the money to further your investment portfolio, or you’ll get a standard refinance and hopefully reduce the interest rate and/or mortgage payment on the existing loan. While these are the possible benefits of a refinance, the question a lot of homeowners face is whether or not the refinance will actually benefit them in the long run. A home refinance calculator can help with that. In addition, here are a couple of ways you can determine if it’s the best step for you.
Dissect Your Original Home Mortgage
Before you head out and start trying to refinance, you will need to go over your existing mortgage to determine where you stand with the current debt. A good place to start is to figure out the amortization schedule of the loan because this will help you see what part of your monthly payment goes to pay off the principal and what part is paying on interest. An amortization schedule calculator can easily help you see where your payments are going.
You’ll also want to consider how long you’ve had the loan, how many years you have left before it is paid in full, and how much equity you have in the home. While many people refinance hoping to reduce the interest rate, if you’ve been paying on the loan for ten or fifteen years, a lower interest rate may or may not benefit you. You’ll have to consider the terms of the new loan before you can determine whether or not this will be a smart move.
It’s also smart to consider how long you think you’ll own the home you’re refinancing. Obviously situations change so this isn’t a set in stone decision, but if you know you’ll be leaving in a year, you may consider things differently with a refinance. So make your best guess here and take it into account.
Compare the New Home Loan with the Help of a Home Refinance Calculator
After you’ve figured out the details of your existing home mortgage, you’ll want to compare the details with the new mortgage. A good place to start is with a home refinance calculator. With a home refinance calculator you can put in the details of the new loan in comparison to the old loan, as well as the fees associated with the refinance, and it will give you an estimated amount of savings in interest. It will also show you the estimated mortgage payment, the estimated monthly savings, and the number of months it will take you to recoup the fees you paid out to have the refinance completed. The calculator is a great way to determine how much you’ll save at different interest rates and loan terms.
While the calculator is a great tool, it’s not a bad thing if you do a little more research on the possible changes in your loan. Consider if you’re going to be in the home for an extended period of time. When you refinance you may or may not want to buy points. A point is about 1% of the loan. This can be paid up front or rolled into the loan. Oftentimes homeowners who don’t intend to sell the home for a long time will buy points because they are basically paying down interest up front. This can result in a lower mortgage payment and less money paid out over time.
You will also want to consider how long you’ve been paying down the mortgage. If you’ve been paying for fifteen years and you have a thirty year loan, you’ll want to take this into consideration. You can refinance to another thirty year loan, but the life of your loan will now extend another fifteen years. There is a possibility you will save money but you will be strapped into the payment longer. On the other hand, you may be able to secure a 15 year loan but the terms will be different and may not be beneficial.
What it boils down to is that there are a lot of variables that come into play when refinancing, and they are all variables that need to be considered. However, the refinance option is there to make mortgages more affordable and to help people save money, so there is a good chance you will be able to benefit.