Loan Refinance Calculator: Estimate Monthly Savings

A loan refinance calculator estimates how much your monthly payment could change when you replace an existing loan with a new one. Enter the new loan amount, APR, and term to see its estimated payment and total interest; compare those results with your current loan to measure payment savings.

Formula

This calculator works out the scheduled payment and total interest for the proposed replacement loan. It does not calculate monthly savings by itself because that requires the current loan’s payment and the refinance costs, which are not inputs here. Compare its monthly payment with the current payment: current payment minus new payment is the estimated monthly payment difference. A positive result means the new scheduled payment is lower; a negative result means it is higher.

The monthly payment formula is M = round(P × r ÷ [1 − (1 + r)⁻ⁿ], 2). Here, P is the new loan principal in dollars, APR is the annual percentage rate in percent, r = APR ÷ 1200 is the monthly rate as a decimal, n = years × 12 is the number of monthly payments, and M is the monthly payment in dollars rounded to cents. Total interest is I = M × n − P, using the rounded monthly payment. APR must be at least 0.01% in this calculator because the payment formula uses a positive rate.

Worked Example

Using the defaults—P = $20,000, APR = 8%, and a 5-year term—the loan has n = 5 × 12 = 60 monthly payments and r = 8 ÷ 1200 = 0.0066667 per month.

1. Payment before rounding: $20,000 × 0.0066667 ÷ [1 − (1.0066667)⁻⁶⁰] ≈ $405.527.
2. Rounded monthly payment: $405.53.
3. Total scheduled payments: $405.53 × 60 = $24,331.80.
4. Total interest: $24,331.80 − $20,000 = $4,331.80.

These results describe the proposed loan, not the savings from refinancing. For example, if a borrower’s existing payment were $450, the payment difference would be $450 − $405.53 = $44.47 per month before considering costs. That hypothetical comparison does not establish how much the borrower saves overall.

Assumptions

• The interest rate is fixed for the full term and is entered as an annual percentage rate.
• Payments are equal monthly installments, made at the end of each monthly period.
• Interest compounds monthly at APR divided by 12.
• The estimate excludes refinance fees, taxes, insurance, mortgage insurance, escrow, and any other charges not entered as calculator inputs. It also assumes the full new loan amount is principal.

How to Compare Monthly Savings

Use the same basis when comparing loans. Find the current required monthly principal-and-interest payment and compare it with the new calculator payment. If the old payment includes escrow or insurance, separate those amounts first: they may not change when the loan is refinanced, and this calculation does not include them. Confirm whether a quoted payment includes any optional products or other charges.

Then account for the cost of refinancing. A lower monthly payment does not automatically mean a lower overall cost. Fees paid upfront, fees added to the new balance, and interest paid over a longer term can outweigh a smaller monthly bill. A simple break-even estimate is upfront refinance costs divided by monthly payment reduction. For instance, $1,200 in costs divided by a $40 monthly reduction equals 30 months. This rough calculation assumes the payment difference remains steady and ignores the time value of money, tax considerations, and changes in loan balance; it is not a complete cost comparison.

For a fuller comparison, calculate remaining payments on the current loan and total payments plus fees on the proposed loan over the period you expect to keep it. Compare balances as well as payments: a longer term may lower the installment while leaving more principal outstanding after a given number of months. Use the lender’s written figures for the exact payoff amount, fees, and payment schedule.

What Changes the Result

• New principal: This is the amount financed, which may differ from the current balance if costs are added or cash is taken out. Enter the proposed loan amount, not automatically the original loan amount.
• APR: Enter the proposed annual rate as a percentage, such as 8 for 8%. Do not enter 0.08. The calculator treats the rate as fixed.
• Term: A longer repayment period generally spreads principal over more payments, often reducing the scheduled payment while potentially increasing total interest. The calculator accepts years and converts them to months.
• Current payment and payoff: These are essential for a real comparison but are not requested by this calculator. Check a recent statement or obtain current payoff and refinance figures from the relevant lender.

Common Limits and Mistakes

A payment reduction is not the same as savings. It measures cash flow per month, while total cost depends on interest, fees, term, and how long the loan remains outstanding. A refinancing comparison should also avoid comparing a current payment that includes escrow with a new principal-and-interest estimate that excludes it.

Check units and rounding. APR is entered in percent per year; the formula divides it by 1,200 to get a monthly decimal rate. The displayed payment is rounded to cents, and total interest uses that rounded payment, so a lender’s final schedule can differ slightly because of payment dates, daily interest calculations, rounding practices, or a different APR convention. The formula also assumes regular monthly payments and does not model variable rates, irregular payment timing, prepayment penalties, or fees.

Frequently Asked Questions

How do I calculate monthly savings from refinancing?
Subtract the proposed monthly payment from the current monthly payment, using comparable payment components. To estimate whether the difference offsets costs, divide upfront costs by the monthly reduction, while recognizing that this simple break-even estimate leaves out other factors.

Does a lower refinance payment mean I pay less overall?
No. A longer term can reduce the monthly payment but increase the total interest paid. Fees and the remaining balance at the time you expect to repay or sell also matter.

Should refinance fees be included in the new loan amount?
Use the proposed principal shown in the lender’s estimate. If fees are financed, they may increase that amount and affect both payment and interest. If fees are paid separately, include them when comparing overall costs rather than adding them to principal.

Why is the calculator’s payment different from my lender’s quote?
The estimate assumes a fixed rate, monthly compounding, equal end-of-month payments, and no added charges. A quote may use a different loan amount, term, APR, payment date, or fee treatment. Check the lender’s disclosure for the figures used.

Does this calculator show whether I qualify to refinance?
No. It performs loan-payment arithmetic only and does not assess eligibility, approval, or the terms a lender may offer. Obtain actual terms and costs directly from the lender.

This result is an estimate; the lender’s disclosure gives the exact figures.

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in p | New loan amount | $ | 20000 | 1 | 100000000
in apr | New interest rate (APR) | % | 8 | 0.01 | 100
in yrs | New loan term | years | 5 | 0.0833 | 50
out pmt | New monthly payment | $ | round(p * (apr / 1200) / (1 - (1 + apr / 1200) ^ -(yrs * 12)), 2) | 2
out int | New loan total interest | $ | pmt * yrs * 12 - p | 2