Q1: When should I refinance my mortgage?
Consider refinancing when: interest rates have dropped significantly (typically 0.5-1% lower), you can shorten the loan term, you want to switch loan types, or you need cash (cash-out refinance). Calculate if monthly savings justify closing costs and if you plan to stay long enough to break even.
Q2: How much can I save by refinancing?
Savings depend on: rate difference, remaining loan balance, new loan term, and closing costs. This calculator shows monthly payment savings. To determine if refinancing makes sense, calculate the break-even point: closing costs divided by monthly savings = months to break even.
Q3: What costs are involved in refinancing?
Refinancing costs include: origination fees, appraisal, title insurance, recording fees, and other closing costs (typically 2-5% of loan amount). These costs reduce your savings. Only refinance if you'll stay in the home long enough to recoup these costs through monthly savings.
Q4: Should I refinance to a shorter or longer term?
Shorter term (e.g., 30 to 15 years): Higher monthly payment but much less total interest paid and faster equity build-up. Longer term: Lower monthly payment but more total interest. Choose based on your cash flow needs and long-term financial goals.
Q5: What is the break-even point for refinancing?
Break-even = Total Closing Costs / Monthly Savings. If closing costs are $5,000 and you save $200/month, break-even is 25 months. Only refinance if you plan to stay in the home longer than the break-even period. This calculator shows monthly savings; factor in closing costs separately.
Q6: Can I refinance if I have less than 20% equity?
Yes, but you may need to pay PMI (Private Mortgage Insurance) if your new loan-to-value ratio exceeds 80%. PMI increases your monthly payment and reduces savings. Some loan types (FHA, VA) have different rules. Check with lenders about PMI requirements for your situation.