Part one: Does it pay to swap loans?
Use this section to see how long you need to stay put for a refi to pay off. Our example assumes the borrower has a $150,000 balance on a 30-year loan at 8.25% and pays 2.5% in points and closing costs, a total of $3,750 to switch to a 7% loan.
| 1. Enter the monthly principal and interest payment on your current mortgage. | $1,127 |
| 2. Enter the monthly interest and principal payment on a new mortgage. (Get the exact figure from your lender, use the table below, or use the calculator under TOOLS at money.com.) | $998 |
| 3. Subtract line 2 from line 1. This is your monthly saving. | $129 |
| 4. Enter your refinancing costs (available from your lender). To estimate, add points, if any, and another 1% of the loan amount if you pay any closing costs. | $3,750 |
| 5. Divide line 4 by line 3. This is the number of months needed to recoup your refinancing costs. If you plan to be in your home for at least a year or so beyond this point, it makes sense to refinance. | 29 months |
Part two: Which new mortgage is better?
Once you’ve used part one of the worksheet to analyze a couple of loans with different rates and up-front costs, use this part to compare your options. Our example assumes you are choosing between two mortgages: a $150,000 loan at 7% with total up-front costs of 2.5% vs. a $150,000 loan at 7.5% with costs of 1%.
| 1. Enter the total refinancing costs for the mortgage with the higher out-of-pocket expenses. | $3,750 |
| 2. Enter the total refinancing costs for the lower-cost mortgage. | $1,500 |
| 3. Subtract line 2 from line1. This is the difference in refinancing costs. | $2,250 |
| 4. Enter your monthly savings by switching from your current mortgage to the higher-cost loan (from line 3 in part one). | $129 |
| 5. Enter your monthly savings by switching from your current mortgage to the lower-cost loan (from line 3 in part one). | $78 |
| 6. Subtract line 5 from line 4. This is the difference in the monthly savings. | $51 |
| 7. Divide line 3 by line 6. This the number of months it will take to come out ahead with the higher-cost mortgage. If you stay put at least a year beyond this point, the higher-cost loan is a better option. | 41 |
What’s your monthly payment?
| To compute a payment, divide your new mortgage by 1,000 and multiply the result by the dollar amount at right for the rate and term you want. |
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