Refinancing your mortgage loan may present an opportunity to take advantage of lower interest rates. Before contacting a lender, who will need your personal information to run a credit check, you can calculate the mortgage payment to determine if a new loan makes sense. Many borrowers wait for interest rates to reach two percentage points below their current mortgage rate before inquiring about refinancing. After a quick mortgage calculation, you might find savings that compel you to contact a lender about refinancing your home loan.
Check a recent mortgage statement to find your approximate loan balance. Notice the amount shown for your principal balance and look for any past-due charges. Call your mortgage company to request a payoff amount if you wish to calculate a more accurate mortgage payment.
Estimate the amount of your new mortgage loan. Apply 3 percent to your mortgage balance to cover loan origination and closing costs. For example, your loan balance is $100,000 and would amount to $103,000 ($100,000 x 1.03 = $103,000) after you’ve added the $3,000 in estimated closing costs. Review your prior settlement statement to view some of your previous closing costs, as the actual charges may exceed 3 percent of the amount financed.
Check local newspapers, as well as financial websites such as Bankrate.com or the Wall Street Journal's website, for current interest rates that correspond with the loan term you are seeking. You will need to use the current market rate for a 30-year or 15-year loan to calculate your refinancing scenario.
Use a mortgage calculator to compute your mortgage payment by applying the information gathered in the previous steps (see Resources). Enter the estimated amount of your new loan and select the loan term. Input the approximate interest rate found during your research for the loan term you want. Then calculate your estimated mortgage payment.
While generic estimates of your new mortgage can provide a range of payment scenarios, your bank or mortgage broker could provide a good faith estimate that more accurately reflects your closing costs and new monthly payment. Certain qualifiers, such as your income, credit score and loan-to-value ratio, will be used in calculating your mortgage payment.
- While generic estimates of your new mortgage can provide a range of payment scenarios, your bank or mortgage broker could provide a good faith estimate that more accurately reflects your closing costs and new monthly payment. Certain qualifiers, such as your income, credit score and loan-to-value ratio, will be used in calculating your mortgage payment.
Ray Cole has written professionally since 1999 and has designed dozens of Web sites. Cole writes for eHow and "SF Gate." As a small business owner for over 15 years, he provides mortgage services, credit-related help and financial planning for his clients. Cole is currently writing a book about personal finance. He has also studied and taught martial arts for over 31 years.