Mortgage Refinance Options: Comparing Rates and APR with a Mortgage Calculator

Are you riding the rates roller coaster while waiting to refinance your mortgage? There's more to refinancing than mortgage rates. Here's how to estimate savings using online mortgage calculators for making loan comparisons.

When planning a mortgage refinance, it's important to understand the impact of rates, closing costs, and APR. Mortgage rates won't stay low forever, and a mortgage refinance can benefit your finances in several ways:

  • Lower your mortgage rate: If your refinance rate will be a percentage point or more below your existing mortgage rate, it may be worthwhile to reduce your rate by refinancing. Lowering your rate decreases your mortgage payment and enables you to pay off your home loan faster.
  • Convert adjustable rate mortgage (ARM) to Fixed rate mortgage (FRM): Refinancing to a fully amortized fixed rate mortgage stabilizes your monthly principle and interest payment, You can also eliminate exotic mortgage features such as interest only payments or negative amortization that make it more difficult to pay off your home loan.
  • Cash out home equity: If you have high-cost consumer debt, or need cash for home improvements, you may be able to refinance for enough to pay off your current mortgage and get extra cash. This depends on factors including how much you owe on your existing loan and your home's current value.

Your decision to refinance involves comparing your current mortgage with potential refinance mortgage terms. You can use online mortgage calculator tools for estimating payments, savings, and making a mortgage comparison between your current home loan and proposed refinancing terms.

  • Mortgage rates: This term refers to mortgage interest rate, which is expressed as a percentage. Mortgage rates do not include additional costs of getting a mortgage refinance.
  • APR: This refers to the annual percentage rate, and is the cost of financing a mortgage loan, including the mortgage rate and closing costs. When comparing mortgage refinance quotes, pay close attention to the APR for each quote. If the mortgage rates are the same, but one APR is higher than another, this means that costs are higher for one loan than the other. Keep in mind that you can only compare APRs between identical loans--you can't compare the APR of a 5/1 ARM to that of a 30 years fixed loan.
  • Closing costs: When comparing costs between a current mortgage and a refinance mortgage, or between consumer debt costs and consolidating debt with a cash out refinance, it's essential to consider the closing costs paid for a refinance mortgage. Knowing how long you plan to keep your home after refinancing can help determine the "break-even" period needed before you'll realize savings from refinancing.

You can compare payments for your current mortgage and proposed refinance terms using a mortgage payment calculator, and learn more about refinancing options using a variety of loan calculators.

Posted By :
Karen Lawson is a freelance writer with extensive background in mortgage banking. She holds BA and MA degrees in English from the University of Nevada, Reno.

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