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Current Mortgage
Mortgage balance of original loan:
Closing costs (including points):
Orignal loan amount:
Term (years):
Term (months):
Interest rate:
Monthly PMT (a):
If you plan to hold the loan until maturity:
Years remaining:
Months remaining (b):
Nominal value of remaining PMTs (a x b):
Present value of remaining PMTs @ __% discount rate:
Nominal break-even (time required to recover refi costs):
NPV break-even (factors in time value of money):

Green represents savings to home owner.

Red represents higher cost to home owner.

Focus should be on present value difference.

If you plan to sell home prior to loan maturity:
Sell home in how many years?:
Months remaining on mortgage (c):
Nominal value of remaining PMTs (a x c):
Present Value of Remaining Payments (d):
Mortgage balance due upon sale:
PV of mortgage balance due (e):
Total PV of PMTs and mortg. bal. (d + e) @ __% discount rate:
Click on EXAMPLE from home page to understand why present value of payment is more meaningful than nominal value.

How does refinance calculator work?

  • The refinance calculator compares the cash flows of the current mortgage vs. the contemplated new mortgage under new terms, and assumes that both loans will be held to maturity. The calculator shows both the nominal value of savings or cost increase, and the present value (PV) of savings or cost increase.
  • The nominal amount represents the aggregate value of mortgage payments under the refinance mortgage vs. the aggregate value of payments under the current mortgage.
  • The PV of savings factors in the time value of money, and discounts each set of cash flows by the borrower’s “cost of capital” or discount rate. Understanding the value of savings or cost increase in current dollars is critical to making an informed decision about whether to refinance. Typically, banks and mortgage brokers will not reference PV, as it can be difficult for them to calculate, and some brokers may not understand the concept.
  • Reference the example which shows how NPV and IRR concepts can help you make money in real estate to understand how PV gets applied to mortgage refinance options.

Who benefits from a mortgage refinance?

There are many common reasons to consider refinancing your mortgage. If you fall into one of the groups below, try using the refinancing calculator to determine if this is the right choice for you:

  • Lower interest rate—if you closed your loan during a period of high interest rates that have since decreased, a refinancing may be advantageous for you.
  • Switch mortgage types—if you’re considering switching from adjustable-rate mortgages (ARM) to a fixed-rate mortgage to lock in a lower rate for the remaining life of the loan. This is especially helpful in times of economic volatility.
  • Improved credit score—if your credit score has improved recently, you might be eligible for a more favorable interest rate.
  • Cash out – if you are considering debt consolidation or making home improvements and have enough equity in your home, a cash-out refinance may be appropriate for you. Cash-out refinance taps into your equity by refinancing into a larger loan amount than you currently owe. The extra money borrowed is your cash-out.
  • Pay off loan faster–this can result in a higher monthly mortgage payment, but if you can afford it, a refinancing can shorten your existing loan terms.

Why is Present Value (PV) so important?

  • The PV of savings factors in the time value of money, and discounts each set of cash flows by the borrower’s effective, current “cost of capital” or discount rate.
  • For example, if you have a 30-year mortgage at 4.0% and you are now able to refinance at 3.0%, your new current cost of capital is effectively 3.0%. You must compare the cash flows of each mortgage, discounted at the newly available rate of 3.0% (monthly = 3.0%/12 = 0.25% per month), to determine the present value of each loan option. THIS is what you need to compare to understand which mortgage has a lower cost on a PV basis.
  • The vast majority of brokers do not focus on this PV concept at all. They will merely tell you the difference in the nominal cost of the loans, which can lead to very poor investment decision making. See the EXAMPLE on this website for more detail.

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