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How do I Calculate Refinance Payments?

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  • Written By: Paul Woods
  • Edited By: Jacob Harkins
  • Last Modified Date: 19 September 2016
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Calculating the amount of a loan refinance payment requires inputting several variables into a loan refinance calculator or using a standard formula. Loan refinance calculators are easily available online and most are free. At a minimum, required variables include the current loan amount, the new interest rate and the number of payments on the refinanced loan.

To begin determining the refinance payment online, use a search engine to find the term loan refinance calculator. Many calculators ask for personal information or registration prior to use, however it is as common to find free calculators requiring no registration. Registering for use often results in email solicitations, therefore many borrowers prefer sites that do not require registration.

Most calculators will determine not only the refinance payment amount but provide other information as well, including the number of months required to recoup costs of refinancing. In each case, the first variable the borrower must know is the current amount of the loan, that is the original loan amount minus the total amount of principal payments made. This information should be on an amortization schedule with the original loan documents but is typically also available from the offices of the current loan holder.

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To calculate the refinance payment, the borrower will next have to know the interest rate being offered on the new loan. The calculator also will require the total number of months or years the refinanced loan will cover. Finally, if closing costs are being wrapped into the loan amount, that figure will be required as well.

These variables can yield a simple refinance payment, but the actual payment can include additional expenses. In most loans from a bank or a mortgage company, the payment also will include the annual cost of taxes and insurance spread over the number of payments per year. In some cases, the equity in a home prior to refinance can exceed 20 percent. If so, and the loan to value ratio is less than 80 percent on the new loan, the refinance payment usually will not have to include private mortgage insurance, which typically is required for any loan greater than 80 percent of the home’s value.

It is possible for an individual to calculate a refinance payment without an online calculator. This formula requires one additional variable, which is the interest rate per payment period. If the loan requires 12 annual payments, the borrower will need to divide the interest rate by 12. To calculate a refinance payment multiply the interest rate per period by a figure equal to one plus the interest rate per period raised to a power equal to the total number of payments. Next divide that figure by one minus the interest rate per period raised to a power equal to the total number of payments. Then multiply the resulting figure by the principal amount of the refinanced loan.

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