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Refinance mortgage calculator

Mortgage calculator online in Canada in 2022. How to figure out a mortgage loan yourself?

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What is meant by refinancing a mortgage?

A mortgage is a loan typically used to purchase or maintain a home, land, or other types of real estate, for which that property then serves as collateral. A mortgage allows most citizens to have the chance to own real estate, as the entire purchase price of the house doesn't have to be provided upfront. However, the borrower cannot be considered the full owner of the mortgaged property until the last monthly payment is made. That’s why the borrower must repay the money within a specific time by making a monthly payment. Regular payments are divided into principal, the original amount borrowed, and interest, which is the cost paid to the lender for using the money. 

Imagine the situation: you've locked in a 30-year mortgage, and interest rates start to drop at some point. You may think of keeping up with your mortgage payments, locking in lower interest rates. But, here it comes to refinancing. Refinancing a mortgage is ending your existing mortgage and starting a new one. You can do this with your current mortgage provider or switch to another. 

Is refinance mortgage worth it?

Refinancing your mortgage can be an intelligent financial choice depending on your circumstances. However, it’s better to stick to current terms in some situations. For instance, if you're refinancing your mortgage while in the middle of an existing mortgage term, you will likely be hit with a prepayment penalty. Therefore, it’s essential to ensure that refinancing is not a waste of money. That’s why it’s crucial to understand the costs and benefits before you refinance. Refinancing can be the logical choice because it may positively impact your financial situation. Refinancing your mortgage may help you save some cash. Unlike simply renewing a mortgage, refinancing allows you to unlock up to 80% of the equity that you have built up in your home.

When considering whether refinancing is worth the expense, consider the time you intend to own your home. If you only anticipate owning a piece of property for a few more years, you likely won’t save enough on mortgage payments to justify the added costs of refinancing. In addition, most experts say that to make refinancing worthwhile; you need to knock at least three-quarters or a full percent off your current rate. So for refinancing to make sense, you need to save enough in interest to eventually cover the closing costs.

It’s only you who can decide if refinancing is a good idea. However, an online calculator can determine if refinancing the mortgage is worth it for your situation. The reasons it is worth refinancing a mortgage and how the calculator can assist you will be discussed further.

Reasons to refinance a mortgage

If you have a mortgage loan, you may want to refinance it for the associated benefits of the offer. However, it makes sense to refinance for other reasons than saving on lower mortgage rates. We’ll look at reasons when doing a refinance is worth it:

  1. Let's start with the most common reason - to lock in a lower interest rate before your mortgage renewal date. This may appeal to those who have improved their credit and finances since the last time they applied. It can make sense to refinance after interest rates fall. If your credit score and financial situation have improved, you can take advantage of lower interest rates. Refinancing can be a good way to convert a loan to obtain a lower interest rate for borrowers with a perfect credit history. Not only do you get the benefit of a lower payment, but you also save on interest costs, and refinancing will allow you to make some savings. In that case, refinancing looks attractive.

  2. Refinancing can also be used to access home equity you’ve built as cash for debt consolidation, home improvements, and other significant expenses. As the mortgage is repaid, you will gradually increase your equity in your home. Your home equity is calculated by taking the current value of your home, then subtracting from that your outstanding mortgage amount. Many lenders will allow you to borrow from them using your home equity as security for the loan. 

If refinancing for equity, the first thing to determine is the maximum amount of equity you can access. In Canada, mortgage holders can access a maximum of 80% of their home's value, less any outstanding mortgage balance. Unfortunately, this comes at a cost – your lender will charge you a penalty for accessing this equity because you break your mortgage early. Use a mortgage refinance calculator to estimate your maximum equity and the corresponding penalty. If you’re refinancing in a falling interest rate environment, you may be able to take advantage of interest savings as a bonus.

  1. Change mortgage types, such as between a closed or open mortgage, or convert from an adjustable-rate to a fixed-rate mortgage.

  2. When you refinance, you may be able to shorten or extend your loan term depending on what you’re looking for. For example, you can extend the loan term, which will make each payment to be smaller and more affordable, but make the mortgage term longer. By shortening the repayment term, you’ll be able to pay off the loan quicker. Even though this will increase your loan payments, you’ll pay less in interest over the life of the loan. Remember that a longer mortgage means paying more interest in the long run.

Why do you need a mortgage refinance calculator?

Should you refinance your mortgage? Refinancing a mortgage can be a valuable option for a homeowner. However, there is a number of variables to consider, such as the costs associated with refinancing that can outweigh any potential savings you might build. As a result, it's essential to understand how much a mortgage refinance will cost you before you pull the trigger - that's where a mortgage refinance calculator comes in handy. 

Before you decide to refinance your mortgage, evaluate the cost of refinancing and whether it’s worth the long-term savings. Whatever your mortgage needs, tools like mortgage calculators help you work out your mortgage budget. Then, calculate your new mortgage payment with a lower rate or after you’ve accessed home equity. The calculator can also estimate any penalties you may incur. 

Refinancing your mortgage can still be financially worthwhile even with a very high prepayment charge. However, you want to be pretty confident about that, and the calculations required can be complex. That's what a mortgage refinance calculator seeks to help you with. The mortgage refinance calculator will do the hard work for you, estimating the penalties associated with refinancing and the potential savings you'll make from getting a new mortgage at today's rates. While there are some non-financial reasons you might want to refinance your mortgage, the calculator gives you the information you need to start making a decision.

To determine if you can save money with a lower mortgage rate, use a calculator to compare the monthly interest savings against the cost to refinance. You can utilize calculators 24/7, free of charge, without obligation to purchase, no matter where you are. Then, take several minutes to answer a few questions and discover the lowest rates available. 

Using the mortgage refinance calculator will be the first piece of information that should make it easier for you to decide on the best course of action. It removes the guesswork from figuring out whether it’s worth breaking your existing mortgage to get a new one. It factors in interest savings, fees, and penalties and boils it all down to a simple recommendation.

Attention! The calculations are provided for information purposes and should not be construed as financial, legal, or tax advice. 

How to use a mortgage refinance calculator

Using a mortgage refinance calculator is essential to understand the costs and potential savings of breaking and renegotiating your mortgage agreement. A mortgage refinance calculator lets you estimate your new monthly mortgage payment using the terms of your current and refinanced loan. Based on what you enter, it provides valuable information to homeowners considering a refinance based on what you enter. It shows the amount of equity you can access, the penalty paid for breaking the mortgage, and the monthly mortgage payment. It also calculates how much you’ll save in monthly payments and interest over the life of the loan. You can use the calculator to estimate the total costs of refinancing and how many months it will take to recover those costs, which is known as the break-even point. 

A calculator is a helpful tool that will help you to evaluate the total cost of refinancing and how much you can save. It will display a pie chart showing the distribution of the total payment amount as a percentage, precisely the amount of the principal debt and the total amount of interest payable. Along with this, you can compare the current terms with future refinancing. The calculator will depict how much you, as a borrower, can save or lose. Besides that, calculate your break-even point to determine how long it will take to recoup the l costs connected with the refinancing process. The break-even period is the number of months to reach the point when you start saving. 

The calculator can provide you with recommendations regarding lenders as well. Remember, calculators are designed to help you make good financial decisions, but they are only illustrative and can't be the basis for legally significant actions.

How to calculate mortgage refinance payments

Before refinancing your mortgage, you should consider the potential savings or losses. For this, a mortgage refinance calculator that evaluates the new monthly payment due and other financial costs associated with mortgages can be an indispensable tool. In addition, you will be asked about your mortgage provider, original rate, and the length of your term. 

  1. To begin, enter the information about your current loan. Next, input the current value of your property and the remaining mortgage balance. This will determine the equity in your home and show the cash available to access. The maximum mortgage amount you can access will be 80% of the current home value. We subtract the current mortgage balance from the resulting maximum mortgage amount and get available cash. You can increase your mortgage if you want to access the available money. When you refinance your mortgage, you may have the option to access a portion of the equity you’ve accumulated in your home. You will receive this equity in cash when the refinance process is completed.
  2. Choose your new mortgage rate. Adjust tenure up to 30 years, choose fixed or variable mortgage rate and select your province. Or you can simply customize your rate.
  3. Enter required variables to estimate the penalty to break your mortgage. If you refinance your mortgage before your tenure is up, you will have to pay the penalty or breakage fee. Lenders calculate this based on your current mortgage balance, interest rate, and the time remaining in your term.

Important! The calculations may not be accurate and are subject to change.

It is not meant to be relied on or used in lieu of advice from a professional. The results do not include special offers, such as cashback incentives or any discharge, registration, reinvestment, or transfer fees you may also incur. For an exact penalty calculation, contact your lender directly.

You may utilize several calculators to make a deliberate decision.

How to compare mortgage refinance options using a calculator

It’s important to research which lenders offer the most competitive interest rates and fees to find the best deal with the best-refinancing terms for refinancing your mortgage. You can start by looking at your current lender. A mortgage refinance calculator is a valuable tool when it comes to refinancing. Not only does it assist in figuring out how much you will spend on interest with the old loan and new mortgage loans, but it also can help you compare different lenders and their offers. To help you weigh the pros and cons of other offers, the calculator estimates the fees for breaking your mortgage agreement and calculates what your new mortgage payment would be under revised terms. Then, compare what it would cost to borrow through other lenders. Enter different data to find out under what conditions you will receive the best offer. And the calculator will provide a recommendation as to whether it’s worth refinancing.

Does refinancing hurt credit score?

Before you consider refinancing a mortgage, you should check your credit because good credit is essential for getting the lowest mortgage rate. The lenders rely heavily on an applicant’s credit score as a part of their approval process for refinancing, which contributes to your hard credit inquiry. Also, as the credit score factors in the age of your oldest account and the average age across all accounts, closing a long-standing credit account could cause your credit score to drop. That means your credit scores may take a slight hit when you refinance. But it should creep back up as you pay down the new loan. Finally, remember not to skip payment while refinancing. Nothing can lower your credit score quicker than late payments.

What should I watch out for when refinancing?

The benefits of refinancing don’t always outweigh the downfalls, so pay attention to all the details listed below. 

  • Consider different options instead of focusing on one lender. It pays to look carefully into refinancing rates, terms, and fees offered by other lenders. Then, take your time and find your best deal.

  • Don't get fooled by the low rate. It is not always the best deal; sometimes it is used to disguise a loan with unusually high fees. 

  • If you only get a slight reduction in your interest rate, say half a percentage point, it will take a long time to recover your closing costs. So refinancing your mortgage is generally a good option if you can decrease your interest rate by 1% to 2%.

  • You need to project how long you plan to stay in your home. For example, it might take your savings from refinancing more than five years to exceed what you paid to refinance, and you might have sold the home and moved by then, so it makes no sense to refinance under this scenario. 

  • Take into consideration prepayment penalties. A common reason to stick with your current mortgage is the high cost of prepayment penalties. 

  • Estimate, especially when it comes to fees. Be sure to inquire about such things as the loan origination fees, points, credit reports, and all other fees before applying for the loan. 

  • Be aware of any other added fees. While things like loan origination, application, and title fees are unavoidable and legitimate, some lenders will add charges for things like "document preparation" or overcharge for obtaining credit reports or document delivery.

  • Finally, check over your final documents at closing to ensure they match what you were told before applying.

What is the formula for refinancing?

Refinancing costs are a summary of closing fees and other additional fees. 

Cost of refinancing = closing cost + all the required fees. 

You can determine how many months it takes to recoup the money you spend on refinancing by simply dividing the monthly savings by your total closing costs. But for more precise calculations, use online calculators. They will assist you in figuring out your costs and monthly payments.

What are the costs of refinancing?

While a refinance can be a great way to unlock equity in your home, it can come with an expensive prepayment penalty. Most mortgages in Canada are closed mortgages, meaning you can’t break the mortgage contract to refinance without a penalty. Therefore, refinance can never be free. Generally, mortgage refinancing does come with fees and charges, including lender and attorney fees, title search and insurance costs, and closing costs, like document preparation. Borrowers should also prepare to cover any necessary appraisal and inspection costs as required by the lending institution. Some lenders offer “no-cost” refinancing, but the borrower will pay a higher interest rate.

Sometimes, you're allowed to roll the closing costs into your loan. However, you are then left paying interest on closing costs for as long as you have that loan. As most mortgage brokers and lenders can cover your legal costs, the main cost you need to worry about is your break of mortgage penalty, known as the prepayment penalty. This penalty is charged by your lender for breaking your current mortgage contract early, and is based on your original contract date, current mortgage balance, mortgage rate, and other factors. 

When signing a mortgage contract, you agree to pay for a certain amount of time. If you break your mortgage before the tenure is over, you'll be charged a prepayment penalty as a way to compensate the mortgage provider. How much prepayment penalty varies based on the type of mortgage you have, the time remaining on your term, and your mortgage provider - each lender has a different way to calculate prepayment penalties.

The exact prepayment penalty calculation that applies to you will be laid out in your contract. However, the prepayment penalty can depend on your interest rate. For a variable rate, your pre-payment penalty will generally be three months' interest on your outstanding mortgage at your current rate. Having fixed rates, you'll be charged a prepayment penalty equal to three months' interest or the Interest Rate Differential (IRD), whichever is higher. 

You should consider all the costs associated with closing, including the application fee, the underwriting fee, and the processing fee. Recoup the new loan's closing costs can take too much time. You have to evaluate closing costs as you explore refinancing. The mortgage calculator can assist with that. Think about the closing costs and answer a few quick questions. Are closing costs affordable for you right now? Can you spend several thousand dollars on them? Or do you need that money for something else? Is the refinance still worthwhile at the higher interest rate? Will you stay in the house long enough to recover those costs? — if not, the cost of refinancing may not be worth it. 

Carefully consider the potential advantages and downsides of refinancing your mortgage before deciding.