Refinance Housing Loan? Estimate Your New Payment

Refinancing a housing loan means replacing an existing mortgage with a new loan; whether it changes your monthly payment depends on the new balance, APR, and term. This calculator estimates the new loan’s monthly principal-and-interest payment and total interest from the amount, annual APR, and term you enter.

Formula

The calculator uses the standard fixed-payment amortization formula. It first converts the annual percentage rate to a monthly rate, then calculates the level monthly payment:

Monthly payment = round[P × r ÷ (1 − (1 + r)⁻ⁿ), 2]

• P is the new loan amount, in dollars.
• r is the monthly interest rate, calculated as APR ÷ 1,200. APR is entered as a percentage per year.
• n is the number of monthly payments: loan term in years × 12.
• round rounds the payment to the nearest cent.

Total interest is estimated as monthly payment × number of payments − loan amount. Because each payment is rounded to cents, this total uses the displayed rounded payment. It assumes the payment schedule runs for the full term and does not adjust the final payment for lender-specific rounding.

Worked Example

Using the calculator’s default inputs—$20,000, an 8% APR, and a five-year term:

1. Monthly rate: 8 ÷ 1,200 = 0.0066667.
2. Number of payments: 5 × 12 = 60.
3. Substitute into the payment formula: $20,000 × 0.0066667 ÷ [1 − (1 + 0.0066667)⁻⁶⁰].
4. Rounded monthly payment: $405.53.
5. Total interest using the rounded payment: $405.53 × 60 − $20,000 = $4,331.80.

Assumptions

• The APR and payment are fixed for the entire term.
• Payments are monthly and made at the end of each payment period.
• Interest compounds monthly at APR ÷ 12.
• The calculation excludes refinancing fees, taxes, insurance, mortgage insurance, escrow, and any amount added to the new balance for those costs.

What Refinancing Changes

With a refinance, a new loan pays off the remaining balance of the old loan, subject to the transaction’s terms. The replacement loan may have a different balance, interest rate, payment schedule, or term. This calculator isolates the payment mathematics for the proposed new loan; it does not calculate the existing loan’s payoff amount or determine whether a refinance reduces overall costs.

For a meaningful comparison, gather the current principal balance, the lender’s payoff figure for the expected closing date, and the proposed loan’s amount, APR, and term. A payoff figure can differ from the balance on a recent statement because interest may accrue between statement and payment dates, and other items may apply. Use actual written loan figures rather than treating a calculator result as a quote.

How to Compare a Refinance Estimate

Monthly payment alone does not show the full cost. A longer term can lower the scheduled payment while extending the time interest accrues; a shorter term can raise the payment while changing total interest. The calculator assumes the loan lasts exactly as entered, so it does not model selling the home, making extra payments, or paying the balance off early.

• Compare the proposed loan amount with the old loan’s payoff amount, and identify whether any additional borrowing is included.
• Check whether the quoted APR and term match the numbers entered. APR and the interest rate used in a loan contract may be presented differently; ask the lender which figure applies to the estimate.
• Review fees and other charges separately. If costs are paid upfront, they affect cash needed; if financed, they may increase the new principal and the payment.
• Compare the total interest and payment schedule over the same time horizon, not just the monthly payment.

For example, a lower payment after refinancing does not by itself establish that the loan costs less overall. The new loan might have a longer repayment term, or the balance might include financed expenses. A complete comparison needs the actual cash costs and the expected time the borrower will keep the loan, neither of which this calculator asks for.

Costs, Limits, and Common Mistakes

This is an estimate of principal and interest, not a complete housing payment. Property-related charges, insurance, escrow deposits, mortgage insurance, and lender fees are not included. The calculator also cannot identify eligibility, determine a precise payoff amount, or account for a variable rate, a delayed first payment, or a payment structure other than equal monthly installments.

Common input mistakes include entering 0.08 instead of 8 for an APR stated as 8%, entering months in the years field, or using the original mortgage amount rather than the proposed new balance. The APR field expects a percent per year, and the term field expects years. Small differences in rounding or payment dates can make a lender’s schedule differ slightly from this mathematical estimate.

Frequently Asked Questions

What does it mean to refinance a housing loan?
It means replacing an existing home loan with a new loan that pays off the old balance. The new loan has its own amount, rate, term, and repayment schedule.

Does refinancing always lower the monthly payment?
No. The payment depends on the new principal, APR, and term. A different term or a larger loan amount can offset a change in the interest rate.

Does a lower payment mean I will pay less overall?
Not necessarily. A longer repayment period may lower each payment while increasing the time interest is charged. Fees and the length of time the loan is held also matter.

Should I include refinancing costs in the loan amount?
Enter the amount the proposed loan actually finances. If fees are paid separately, do not add them to the principal; assess them separately when comparing total costs.

Why is this payment different from my lender’s estimate?
The lender may use different loan terms, a different APR or principal, a payment date convention, or charges not included here. Check the written loan disclosure for the exact figures and included costs.

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

Related

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• Auto Loan Refinance Calculator: Estimate Payments and Interest

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