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Mortgage Refinance Calculator: Is Refinancing* Right for You?

by SupremeLending | Jun 28, 2024

Understanding How to Use a Refinance Calculator

Refinancing a mortgage can be a strategic tool for many homeowners, but determining whether it’s the right move requires careful consideration and calculation. A refinance calculator can help you understand the potential costs and benefits of refinancing. Here’s an overview of what refinancing is, common reasons homeowners may consider refinancing, and how to use a refinance calculator to get an initial idea of potential related costs.

What Is Refinancing?

Refinancing a mortgage involves replacing an existing home loan with a new one, usually with different terms. The primary goals of refinancing are to change the loan term, reduce the interest rate, or tap into your home’s equity for cash. By refinancing, homeowners can potentially lower their monthly payments, pay off the mortgage sooner, or secure funds to use for other significant expenses. A refinance calculator can help breakdown the costs of refinancing and new estimated monthly payments.

Why Refi Today?

Even in today’s higher interest rate environment, there are still several reasons people may consider refinancing.

Shorten Loan Term. Refinancing to a shorter loan term, for example going from a 30-year to a 15-year term, can help pay off the mortgage faster and save in interest over the life of the loan.
Change Loan Type. Switching from an adjustable-rate mortgage (ARM) to a fixed-rate can provide more stability with consistent monthly payments. Borrowers may also refinance to change from a government-insured FHA loan to a Conventional mortgage or other eligible loan type.
Cash-out Refinancing. This option allows borrowers to use the equity they’ve built in their home and receive the difference in cash to use for other expenses, such as home renovation projects, tuition, or additional large expenses.
Lower Interest Rates. Securing a lower interest rate can reduce monthly payments and potentially save thousands of dollars in the long term.
Life Changes. Major life events such as divorce or death may require refinancing to remove a co-signer from a loan. It’s important for married homebuyers to understand spousal states and ownership rights.

Using a Refinance Calculator**

A refinance calculator is a useful tool to help you understand and estimate potential costs associated with refinancing your current mortgage. Here are general steps to use a refinance calculator effectively.

1. Go to Supreme Lending’s online refinance calculator at www.SupremeLending.com > Learn > Calculators > Mortgage Refinance Calculator.

2. Input Current Loan Details, including the original loan balance, appraised value, interest rate, and loan terms.

3. Enter New Loan Information, including the proposed new mortgage terms, interest rate, and closing costs.

4. Calculate Monthly Payments. With the provided mortgage information, the calculator will provide an estimate of your new mortgage costs and monthly payment.

5. Compare Costs and Savings. The refinance calculator can help you review potential savings and total interest paid for the life of the loan. Consider the break-even point, which is the time it takes for your savings to cover the refinancing costs.

6. Evaluate Additional Factors. Consider any pre-payment penalties or other fees that may be applied to the current loan and the impact of extending or shortening the loan term. Additionally, if you used a down payment assistance program for your initial mortgage, be sure to refer back to the agreed upon terms. In some cases, the assistance may need to be paid back if refinancing before a specified period of time.

Calculate Refinancing Costs

When using a refinance calculator, it’s important to review associated costs to get an accurate picture of whether refinancing may be beneficial. Common refinancing costs include:

Application Fee. This fee is charged to process the loan application.
Origination Fee. The lender may charge a fee to process and originate the loan.
Appraisal Fee. This is the cost of having a home appraised to determine its market value.
Title Insurance and Search Fees. These are costs associated with verifying the home’s ownership and ensuring there are no outstanding claims on the property.
Closing Costs. Other fees and charges may be included that can typically amount to 2-5% of the loan amount.

Determine Monthly Payments

The refinance calculator can also help you determine new estimated monthly payments. By comparing your current payment and the new projected calculation, you can see the impact on your loan and plan your budget accordingly. If the new payment is significantly lower, refinancing may be a great option. If the new payment is higher due to a shorter loan term or other factors, you may need to decide if the long-term benefits outweigh the upfront refinancing costs.

Refinancing a mortgage may offer benefits, but it’s essential to understand the costs and new loan terms involved. A refinance calculator may help you make an informed decision with a comparison of your current mortgage and proposed new loan. Take a step further and get pre-qualified with Supreme Lending today. Let us help you make the most of homeownership and explore your mortgage and refinancing options.

*By refinancing an existing loan, total finance charges may be higher over the life of the loan.

**Results received from this calculator are designed for comparative purposes only, and accuracy is not guaranteed. Supreme Lending is not responsible for any errors, omissions, or misrepresentations.

Understanding Cash-Out Refi Loans and When They Make Sense

by SupremeLending | May 17, 2024

If you’re a homeowner looking to gain access to the equity you’ve built in your home, you’ve most likely heard about cash-out refinancing,* also commonly known as cash-out refi loans. These offer a useful way to access cash by refinancing your current mortgage. But there’s more to the process than that! What exactly are cash-out refinance loans, and when do they make the most sense? Here’s an overview to gain a comprehensive understanding of cash-out refinancing, potential benefits, and different scenarios to consider.

How Cash-Out Refinancing Works

A cash-out refi loan is a refinancing option where you replace your existing mortgage with a new, larger loan than what you currently owe. The difference between the new loan amount and your existing mortgage balance is paid to you in cash. This allows you to tap into your home equity, which is the portion of your property’s value that you own outright.

Scenarios When Cash-Out Refinancing May Be Beneficial

1. Home Improvements

A popular reason homeowners opt for cash-out refi loans is to fund home renovation projects and upgrades. For example, if your home needs a new roof, a modernized kitchen, or an additional bathroom, using the equity in your home to finance these projects may be a smart move. Home improvements can not only enhance your living space but may increase your property’s value.

2. Pay Off High Interest Debt

Another practical use for a cash-out refinance is to pay off other high-interest debt, such as credit card balances or personal loans, potentially allowing you to roll it into a new mortgage with a lower rate.

3. Education Expenses

If you or a family member is planning to attend college, a cash-out refinance may help provide funds to cover tuition and other education-related expenses. This may offer a more affordable, manageable option compared to student loans, while helping build a brighter future.

4. Emergency Funds

Life is unpredictable, and having access to emergency savings can provide peace of mind. Cash-out refi loans could be used to create that financial safety net set aside for unforeseen expenses, such as medical bills or urgent vehicle or home repairs, offering a potential alternative to using high-interest personal loans or credit cards.

When Cash-Out Refi Loans May Not Be Ideal

1. High Closing Costs

Doing a cash-out refinance comes with associated closing costs, which can typically range from 2% to 6% of the loan amount. If the closing costs outweigh the benefits of refinancing, it may not be the best option. It’s important to ensure that the cash-out amount or potential return on investment can justify the closing cost amount.

2. Increased Monthly Payments

Refinancing into a larger loan amount may increase your monthly mortgage payments, especially if you do not secure a lower interest rate. It’s important to know how your monthly payment may change and be prepared to handle any increases.

3. Extended Loan Term

In some cases, a cash-out refinance can extend your mortgage term,. This may offset the potential increase in your monthly payment. However, it also means you might be paying more interest over a longer period of time.

As there are several common reasons to refinance a mortgage, cash-out refi loans may be a strategic way to gain access to your home equity and fund several initiatives. It’s important to understand what all goes into the refinancing process, such as closing costs, potentially increased monthly payments, and extended loan terms.

Ready to explore if a cash-out refinance is right for you? Getting pre-qualified can provide an estimate on how much cash you can take out and a breakdown of your potential refinancing expenses to help you make an informed decision. Contact our expert team today to discuss your mortgage options.