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As we mentioned in our previous article, deciding if a mortgage refinance is a good deal is not always a straightforward question to answer. There are many factors to take into consideration. Calculating how those factors interact to get a straightforward analysis of the cost of a refinance and the savings it will generate is even harder.
That is why mortgage refinance calculators were invented. Mortgage refinance calculators take into account your current mortgage balance, the interest rate you are now paying, how long your mortgage will last for, the cost of buying a refinance, the new interest rate, the market value of your home, your property taxes and insurance as well as our state and federal tax rate.
Lead Fusion provides an excellent mortgage calculator that makes working out all those details a walk in the woods. Other websites like Bankrate.com and Zillow.com also provide similar products. Click here to open the refinance calculator.
This is how the refinance calculator works.
Step 1. You introduce the data requested in the text boxes on the right side of the window.
Step 2. Click on get your results.
Step 3. Analyze the savings you make and decide if it is worth your time to refinance.
The hardest part is collecting the information requested by the calculator. Let us look at how you can find the information you need.
Original Loan Amount: This is the amount you initially borrowed to pay for your house. If you have forgotten you can ask your current lender for a statement on your mortgage which will provide your initial and current balance.
Original Term: This is the total length of your mortgage. Is it a 30-year mortgage, a 15-year mortgage or a 40-year mortgage.
Years already paid: The calculator needs this information to work out the term left on your mortgage.
Balloon year: A balloon payment is a final payment you make on your mortgage loan that is much larger than the monthly payments you have made on the loan up until that time. The year in which the balloon payment is made is called the balloon year. A balloon payment occurs when a loan is amortized over a longer term than the loan rate. For example, with a "7/30" balloon loan, a balloon payment occurs at the end of seven years. If you borrowed $200,000 at 8%, amortized over 30 years, the monthly loan payment is $1,468. However, if a balloon payment occurs after seven years (or 84 monthly payments), you would owe $184,955. This is the unamortized loan balance. Some mortgage provide lower monthly payments by asking you (the borrower) to pay a lump sum towards the end of the mortgage. If your mortgage has a balloon year introduce at which year you will have to pay it.
Interest Rate: Here you must include your current interest rate.
Term: The number of years the new mortgage will last for.
Origination Charge: The cost of processing the new mortgage.
Charge for specific interest rate: Sometimes a lender will ask you to pay extra to get a lower interest rate. These charges are also called points.
Interest Rate: Introduce your new interest rate.
Mortgage refinance calculators will also ask additional information on your financial situation. For instance Lead Fusion’s calculator asks for your current savings rate. This is the interest you get on your savings. Calculators use this to compare the opportunity cost of paying off a mortgage instead of placing your money in other investments.
Your Federal and Tax Rate: The tax bracket your are in and the specific tax rates of your state are also important factors to take into consideration when deciding to refinance.
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