How to figure out if you should refinance?
Indianapolis mortgage rates right now are the lowest I’ve seen them since I became a loan officer in 1999! So chances are good that this would be an excellent time for you to consider a refinance. But to give you a better idea of what your savings can be, here’s a quick Do-It-Yourself Indianapolis Mortgage Refinance Calculator that will give you an idea of whether or not you should give me a call.
In order to do this you will need to know:
- Your Present Mortgage Rate (the interest rate on your current home loan)
- The Available Rate (what the interest rate is today)
- The Mortgage Balance on your loan (how much money you owe on your current loan)
- Your Refinance Costs (how much it costs to refinance your current loan)
Once you have that information, you’re ready to get started!
Jim DeCamp’s DIY Indianapolis Mortgage Refinance Calculator
So for this we’re going to use the most powerful Indianapolis mortgage refinance calculator there is: your mind! It’s really easy and it’s a great little mental workout. Your mind will feel nice and refreshed after this. So here we go!
Subtract your Present Mortgage Rate (PMR) from the current Available Rate (AR) to find the Rate Difference (RD). Then take the Rate Difference (RD) and multiply it by your Mortgage Balance (MB) to find your Annual Savings (AS) for the first year.
Present Mortgage Rate – Available Rate = Rate Difference
Rate Difference x Mortgage Balance = Annual Savings
Annual Savings – Refinance Costs = X
Just get a sheet of paper or start a new text document and plug your own numbers into the equations below.
PMR – AR = RD
RD x MB = AS
AS – RC = X
If X is less than your Annual Savings (AS), you should definitely give me a call! That means that you will save money within the first year of your refinance.
Here’s some example values for the Indianapolis Mortgage Refinance Calculator. Let’s say your Present Rate is 4.5 percent, the Available Rate is 3.5 percent. Let’s say your still have $200,000 left to pay on your current home loan, so that makes your Mortgage Balance $200,000.
So you would take 4.5 percent – 3.5 percent = 1 percent. Your Rate Difference is 1 percent. So 1 percent multiplied by your Mortgage Balance of $200,000 = $2,000. Your Annual Savings for the first year would be $2,000.
And if the Refinancing Costs are less than your Annual Savings of $2,000, this would be a great time for you to give me a call! In this scenario you will save thousands of dollars over the lifetime of your loan by doing a refi.
What If X Is Greater Than My Annual Savings?
Well, I’m sure that it couldn’t possibly be because you did the math wrong. So barring that…
If X is greater than your Annual Savings (AS), you’ll need to figure out another variable: how many more years you think you will be living at your current house?
Once you’ve figured that out, multiply the Number of Years (NY) by the Annual Savings (AS) to get your Overall Savings (OS), or the amount of money you will save during the lifetime of your current loan before paying Refinance Costs (RC).
Then subtract your Refinance Costs (RC) from your Overall Savings (OS) to get your Estimated Loan Lifetime Savings (ELLS), or the total amount of money you will save over the lifetime of your current home.
Number of Years x Annual Savings = Overall Savings
Overall Savings – Refinance Costs = Estimated Loan Lifetime Savings
NY x AS = OS
OS – RC = ELLS
If you’re able to pay the Refinance Costs (RC) upfront and then begin saving money in the future years of your mortgage, then you should give me a call!
How Accurate Is This?
Of course there are other things that could cause your interest to be higher or lower than the current Available Rate, such as your credit rating, monthly payment amount, etc. But this DIY Indianapolis Mortgage Refinance Calculator is great for a quick rough estimate of how much money you can save by taking advantage of the current low, low rates we’re seeing in the market right now.
If you enjoyed this post please share it with a friend or colleague! Feel free to contact me online or give me a call at 317-207-4435 if you are ready to refinance. Have a great day!