Refinance Calculator

The Refinance Calculator calculates your new monthly loan payment and amortization schedule based on the original loan amount, length, and interest rate, as well as the new refinance interest rate and new loan length. Check out the charts and amortization schedule below to see how a loan refinance can save you money on your monthly loan payment, lower the total amount of interest you pay over time, and help you pay your loan off faster.

What is a loan refinance?

A refinance occurs when you replace your current loan with a new one, typically with more favorable terms like a lower interest rate, lower monthly payment, or a new loan length. Common types of refinances include mortgage refinances, student loan refinances, and car loan refinances. One of the main reasons people refinance loans is to save money, whether that means saving money each month with a lower monthly payment, or by reducing the length of the loan so they can pay if off faster, thus paying less interest on the loan over time.

Let’s dig into the math so you can see how much you could save with a loan refinance.

How do you calculate your new monthly loan payment?

We will use the following amortization formula to calculate the new monthly loan payment and amortization schedule:

$$\textbf{Payment} = \frac{PV*i(1+i)^n}{(1+i)^n - 1}$$

Where:

• PV: Current loan balance (you can use the Mortgage Calculator to find your current loan balance)
• i: Refinance interest rate as a decimal or fraction, or annual loan interest rate divided by 12
• n: Length of the new loan in months

Example

Let's use the amortization formula to calculate the new monthly loan payment in the mortgage refinance example above where:

• PV: $488,448.43
• i: .05/12
• n: 360

$$\textbf{Payment} = \frac{$488,448.43*\frac{0.05}{12}(1+\frac{0.05}{12})^{360}}{(1+\frac{0.05}{12})^{360} - 1}$$

$$ \phantom{\textbf{Payment}} = $2,622.10$$

Now, let’s calculate your monthly savings after the mortgage refinance. Using the Mortgage Calculator, we know that the original monthly mortgage payment was $3,160.34, so:

$$\textbf{Monthly Savings} = $3,160.34 - $2,622.10$$

$$ \phantom{\textbf{Monthly Savings}} = $538.24$$

By refinancing your mortgage to a loan with a lower interest rate, you end up saving $538.24 each month!

How do you calculate an amortization schedule?

Now that we know the new monthly loan payment, we can create an amortization schedule that breaks down how your refinanced payment is divided into principal and interest, and shows how much your total loan balance decreases each month. Let's find the interest, principal, and loan balance for the first two months of loan payments after a refinance.

Month 1 (After Refinance)

First, we can calculate the interest paid during Month 1 by multiplying the current loan balance by the refinance interest rate:

$$\textbf{Interest} = $488,448.43 * (\frac{0.05}{12})$$

$$ \phantom{\textbf{Interest}} = $2,035.20$$

Next, we can subtract the Month 1 interest from the monthly loan payment to find the principal paid during Month 1:

$$\textbf{Principal} = $2,622.10 - $2,035.20$$

$$ \phantom{\textbf{Principal}} = $586.90$$

Finally, we can subtract the Month 1 prinicpal paid from the loan amount to find the loan balance after Month 1:

$$\textbf{Balance} = $488,448.43 - $586.90$$

$$ \phantom{\textbf{Balance}} = $487,861.53$$

Month 2 (After Refinance)

Like we did for Month 1, we can calculate the interest paid during Month 2 by multiplying the current loan balance by the refinance interest rate:

$$\textbf{Interest} = $487,861.53 * (\frac{0.05}{12})$$

$$ \phantom{\textbf{Interest}} = $2,032.76$$

Next, we can subtract the Month 2 interest from the new monthly loan payment to find the principal paid during Month 2:

$$\textbf{Principal} = $2,622.10 - $2,032.76$$

$$ \phantom{\textbf{Principal}} = $589.34$$

Lastly, we can subtract the Month 2 prinicpal paid from the remaining loan amount to find the loan balance after Month 2:

$$\textbf{Balance} = $487,861.53 - $589.34$$

$$ \phantom{\textbf{Balance}} = $487,272.19$$

If you keep following these steps, you can calculate how the principal portion of your monthly payment increases and your overall loan balance decreases over time, especially with more favorable loan terms after a refinance. Use the Refinance Calculator above to see how a loan refinance can decrease your monthly payment and lower the total amount of interest paid over time.