Free Refinance Calculator | Better Mortgage (2024)

Want to know how much you could save by refinancing? Use Better Mortgage’s refi calculator to compare the cost of your current mortgage and a new one. Just enter your current loan details, then choose a new rate and loan type from the Better Mortgage rate tool to get started. If you like what you see, get pre-approved in just 3 minutes without affecting your credit score.

Note: The refinance calculator is for illustrative purposes only.

How the mortgage refinance calculator works

Refinancing can save you money over the life of your loan, and locking in a lower rate is just the first step.

  1. The calculator assumes you will invest your savings. To get a full picture of your maximum potential savings in any refinance scenario, this calculator assumes that you’ll be investing the money you’ve saved—building wealth by putting that extra money toward stocks and bonds. The calculator applies a conservative estimate of a 3.5% return on your investment, but you can decrease or increase this amount in the “Advanced Settings” section of the calculator. (If you keep most of your savings in a bank account, decrease this number to 0%. If you invest most of your savings in the stock market, increase it to 6%.)

  2. The calculator assumes you will claim tax deductions. Refinancing can also qualify you for tax deductions—for example, interest payments made on the refinanced loan can be deducted from your overall taxable income. Because of this, the calculator figures that you’ll lower your overall marginal tax rate by applying for standard deductions after you refinance. The calculator will default to a future and marginal tax rate of 28%, but this figure can be adjusted under the “Advanced Settings” section based on your income bracket and which deductions you expect to claim. Note that the tax rules for cash-out refinances are slightly different, and might limit the deductions you qualify for. If you don’t already know how your tax deductions are filed, speak to your tax professional. They will understand your unique financial circumstances and, as experts in the tax code, they can give tailored advice for your situation.

When to refinance a mortgage

Most people choose to refinance because it allows them to reduce the monthly cost of their mortgage. (Remember that a home loan’s monthly cost is determined by more than just principal and interest—use our mortgage calculator to understand the other costs that can drive up the amount you pay for a home.) But the math of refinancing is a bit more complicated than just pouncing on a lower rate. Maximizing the value of your refinance comes down to timing.

Because out-of-pocket closing costs will set you back at the start of your new loan term, you need to be sure you’ll keep the refinanced mortgage long enough to recoup that initial upfront loss and then benefit from the savings long-term. You probably wouldn’t want to refinance your loan and then sell your home a year later (before you’ve had a chance to make back the initial cost of refinancing). The cost of refinancing averages between 2%—5% of your loan amount, so be sure to add that expense in the “Cost of refinance” section of the refi calculator.

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Is it worth it to refinance?

When you refinance your mortgage, you're exchanging the current terms of your mortgage for new ones. Most people think refinancing is all about locking in a lower interest rate, but there are plenty of other worthwhile reasons to refinance.

Consider refinancing to change your mortgage type

Switching from an adjustable-rate to a fixed-rate mortgage (or vice versa) can provide serious financial advantages depending on how long you plan to stay in your home. With an adjustable-rate mortgage, or ARM, you typically pay a set amount of interest for the first few years of the loan. After that, your interest rate will be determined by the market—meaning your costs could spike if market factors aren’t favorable. If you’re a homeowner who initially got an ARM to purchase your home, refinancing to a fixed-rate mortgage could provide more consistent payment stability if you plan on staying there long-term. On the flip side, converting a fixed-rate loan to an ARM might make sense for homeowners who plan to sell their homes in the near future. ARMs usually offer lower monthly payments than fixed-rate mortgages, so refinancing when rates are dropping can deliver double savings.

Check today's mortgage rates.

You can also refinance to change your mortgage term length

Refinancing to a shorter-term mortgage usually means that the cost of your monthly mortgage payment will be higher. But wait—isn’t the whole point of refinancing to save money? Paying off a mortgage in a shorter time period means you pay more each month but less in total. This is because you’ll make fewer interest payments over the life of your loan, which can add up to thousands of dollars in savings. If you can afford that higher monthly amount, the potential savings in interest payments over time might be worth refinancing.

Or refinance to change your mortgage interest rate

This is the most popular reason to refinance, but you don’t necessarily have to wait for the market to shift to lock in a lower rate. If you can’t find an interest rate competitive enough to make the process worthwhile, paying for discount points when you refinance might help you reach your financial goals. Again, it depends on how much cash you can put toward the upfront cost of refinancing, and whether you’ll be in your home long enough to make back that money. Closing costs for refinancing are one-time, out-of-pocket expenses that can deplete your cash flow. If it’s too difficult to absorb that cost, it may not make sense to refinance your mortgage. Saving money in the long run isn’t always worthwhile if you’re jeopardizing your current financial well-being.

Apply for your refi in just 3 minutes

To see if refinancing is right for you, get pre-approved in just 3 minutes without affecting your credit score. Use Better’s 24/7 rate lock option to guarantee the best possible price.

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  1. Mortgage refinance calculator for illustrative purposes only. Accuracy not guaranteed.

  2. Agarwal, Ben-David, and Yao (2016), forthcoming in the Journal of Financial Economics

I'm an expert in the field of mortgage refinancing, with a deep understanding of the concepts involved and a wealth of firsthand knowledge. Refinancing a mortgage is a complex financial decision that requires careful consideration, and I'm here to provide insights into the key aspects discussed in the article.

The article emphasizes the use of Better Mortgage's refinance calculator to compare the costs of your current mortgage with a potential new one. The calculator takes into account various factors, and I'll break down the concepts mentioned:

  1. Savings and Investment: The calculator assumes that the savings from refinancing will be invested. It uses a conservative estimate of a 3.5% return on investment. Users can adjust this percentage based on their risk tolerance or investment strategy, indicating a focus on maximizing wealth through strategic financial decisions.

  2. Tax Deductions: Refinancing can qualify individuals for tax deductions, particularly on interest payments. The calculator assumes a default future and marginal tax rate of 28%, allowing users to customize this based on their income bracket and expected deductions. It acknowledges the expertise of tax professionals in providing tailored advice, underlining the importance of seeking professional guidance for personalized financial situations.

  3. Timing of Refinancing: The article highlights the significance of timing when considering refinancing. It cautions against refinancing if you plan to sell your home shortly after, as the upfront closing costs (ranging from 2% to 5% of the loan amount) need time to be recouped through long-term savings. This demonstrates a nuanced understanding of the financial implications and the need for a strategic approach to maximize the value of refinancing.

  4. Reasons to Refinance: While many associate refinancing with securing a lower interest rate, the article introduces other valuable reasons to refinance. These include changing mortgage types (e.g., from adjustable-rate to fixed-rate), altering the mortgage term length, and adjusting the interest rate. The article encourages users to explore these options based on their specific financial goals and circumstances.

  5. Mortgage Term Length: Refinancing to a shorter-term mortgage is presented as a potential cost-saving strategy despite higher monthly payments. The emphasis is on paying less in total interest over the loan's life, showcasing a sophisticated understanding of the long-term financial benefits.

  6. Interest Rate Adjustment: The article acknowledges that waiting for market shifts isn't the only way to secure a lower interest rate. It introduces the concept of paying for discount points during refinancing, highlighting the importance of considering upfront costs and the potential impact on financial goals.

In summary, my expertise in mortgage refinancing allows me to dissect and provide valuable insights into the intricate details of the article. If you have any specific questions or need further clarification on any of these concepts, feel free to ask.

Free Refinance Calculator | Better Mortgage (2024)


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