Mortgage affordability calculators are most useful to save good money

Image credit: Flickr l Ken Teegardin

For many people, the best way to learn if in fact they should refinance is to use mortgage affordability calculators

By: Hitesh Khan/

Refinancing is often booked as one of the most beneficial ways to save money on your home mortgage. This is not always true and the fact is where you save the money may not be exactly where you want to.

For many people, the best way to learn if in fact they should refinance is to use mortgage affordability calculators are to help them to break down the facts of their loan and really understand if this is the right decision.

For a good amount of those that do this, the benefits are there. For others, you may end up paying far more than you realized that you would.

What Makes Refinancing Worth It?
There are many things that play a role in whether or not refinancing is a good move. This is where mortgage affordability calculators comes in handy. The first thing is to determine what your overall goal is by refinancing. It can answer many questions for you including providing you with these benefits. Why do you want to refinance?

  • Do you want to save money on your loan in total?
  • Do you want to save money per month on your mortgage payment?
  • Do you want to borrow more money and still have just one loan?
  • Do you want to cut down your terms so that you are paying off your loan sooner?
  • Do you just want a lower interest rate or a different type of loan?

All of these things are good reasons to refinance, but the picture has to be brightened a bit more so that you can see the details of how this will affect your total home ownership abilities.

mortgage affordability calculatorsYou can learn the details by using mortgage affordability calculators to help you.

Depending on what your goals are, you will be able to see if this is a wise move or if you should be looking for another solution to your problem.

How To Break It All Down
For anyone looking to invest in a mortgage or to refinance their mortgage, the goal is to know what to expect. You should know what you are going to pay per month. You should know how much you will pay in all (interest and principle together) as well as how long you will be making payments. When you refinance your loan, you take what you currently have and make changes to it in the hopes of accomplishing your goals.

For example, if you want to save money on your loan in total, then you will want to be sure to get a lower interest rate on your loan or use a shorter terms for that loan. If you want to have a smaller monthly payment to pay on your loan, then the best course of action here would be to extend the terms of your loan back to their original terms (if you have been paying on your 30 year mortgage for 5 years, instead of having just 25 more to go, you would re-extend them to 30 years and start over.)

Using A Mortgage Calculator To Get Answers
When it comes to refinancing, you want to know what you will save. You can use mortgage affordability calculators to help you to learn this. Here’s an example of what refinancing may cost you or save you.

Your original interest rate: 2.6 per cent
The original amount you borrowed to buy your home: $2,000,000
The original loan term that you had: 30 years
The number of months left to repay the original loan: 120
New interest rate you can get: 2
New loan amount you are borrowing: $1,800,000
New loan term: 30 years

The results are simple to see. Your old loan would cost you about $9,073 per month in payments while the new loan will save you by reducing your monthly payment to $7,629. This is a savings per month of $1,444, which is significant for most people. This saves you over $17,328 per year by refinancing.

Remember — All Mortgages Are Not Created Equal

Don’t make the mistake of choosing a mortgage based only on its stated annual percentage rate (APR), because there are a variety of other important variables to consider, such as:

The term of the mortgage — This describes the amount of time it will take you to pay off the loan’s principal and interest. Although short-term mortgages typically offer lower interest rates than long-term mortgages, they usually involve higher monthly payments. On the other hand, they can result in significantly reduced interest costs over time.

The variability of the interest rate — There are two basic types of mortgages: those with “fixed” (i.e., unchanging) interest rates and those with variable rates, which can change after a predetermined amount of time has passed, such as one year or five years. While an adjustable-rate mortgage (ARM) usually offers a lower introductory rate than a fixed-rate mortgage with a comparable term, the ARM’s rate could jump in the future if interest rates rise. If you plan to stay in your home for a long time, it may make sense to opt for the predictability and security of a fixed rate, whereas an ARM might make sense if you plan to sell before its rate is allowed to go up. Also keep in mind that interest rates have hovered near historical lows in recent years and are more likely to increase than decrease over time.

Written by Ravi Chandran

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