Using a Loan Calculator: How to Crunch the Numbers

When it comes to deciding whether or not it is time to refinance your first mortgage it is very likely that you are going to want to “crunch the numbers,” as they say, and find out exactly how much you can expect to save and also to discover when your break-even point is.

A break-even point, when you are discussing a mortgage refinance, is the number of months that you will need to make payments on your new loan before the lower payments cover the costs that are associated with a new mortgage.

Costs include such things as an appraisal, plus loan origination fees and all of the other normal closing costs. Often these costs can run $2,000 or more, depending on the size of the loan.

As a general rule of thumb you should run all of the numbers as if you are looking to refinance your mortgage every time interest rates drop by one percentage point. You should definitely run the numbers every time interest rates drop 1.5 percentage points.

It should not be too difficult for you to find a free Mortgage Calculator or Mortgage Refinance Calculator on the internet. Most mortgage calculators ask for the same basic information, so it would be well for you to have the following information handy when you are ready to “crunch” your numbers to see if refinancing makes sense for you.

First you will need to enter your original loan amount. This is the amount of your original loan, not what you currently owe on your mortgage.

Second you will be asked to enter the original term of your loan. For most people this will be either 15 years or 30 years. Note that they are not asking how many years you have left before your loan is paid off – they are asking for the number of years on your original loan document.

Next they will ask for the number of months that you have already paid on your mortgage and they will want the current interest rate that you are paying. If you have a variable-rate mortgage enter the most recent interest rate.

Finally they will want a little information on your new loan. They will want the interest rate of the new loan, the number of years the new loan will run (usually 15 years or 30 years), and they will want the closing costs of your new loan. If you don’t know how much closing costs will be simply enter $2,000.

The calculation will show you what your new monthly payment will be and it will tell you how many months it will be before your loan costs are paid off and you have reached your break-even point.

Loan calculators are a marvel and you would do well to use them frequently.