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Refinancing Savings Formula:
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Refinancing savings represents the net financial benefit you gain from replacing your current loan with a new one. It accounts for both the monthly payment differences and any upfront costs associated with refinancing.
The calculator uses the refinancing savings formula:
Where:
Explanation: The equation calculates your total savings from lower payments over the remaining loan term, then subtracts the upfront costs to determine your net benefit.
Details: Calculating net savings helps determine whether refinancing makes financial sense. A positive number indicates you'll save money overall, while a negative number means refinancing would cost you more in the long run.
Tips: Enter all values in USD. Be sure to include all closing costs (application fees, appraisal fees, title insurance, etc.) for an accurate calculation. The remaining loan term should be in months (years × 12).
Q1: What's considered a good refinancing savings amount?
A: Generally, you want to see at least $5,000 in net savings or a break-even point within 24 months.
Q2: Should I include taxes and insurance in the payment amounts?
A: No, only include the principal and interest portions of your payments for this calculation.
Q3: How do I find my remaining loan term?
A: Check your most recent loan statement or contact your lender. Multiply years by 12 to convert to months.
Q4: What if my savings is negative?
A: A negative result means refinancing would cost you more than you'd save. You might want to reconsider or look for better terms.
Q5: Does this account for interest rate differences?
A: The payment differences already reflect any interest rate changes, so no separate rate input is needed.