Refinancing - Some Simple Formula for Refinancing Calculation
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There is a rule in the world which every one of us knows - There is no free lunch in this world! Everything, every action and every decision we make in world of investment will cost you money. This is the expenses that we cannot skip but we can play around it to make it lower.
In refinancing, whether you refinance your mortgage to get a better deal, or refinance to get some cash from your home equity, you must pay attention on the fees of the refinancing process.
OK. To get the answer for those questions, you can simply pay attention on the “Break-even period†- the period where the interest you save just cover the refinance cost.
To know the “Break-even periodâ€Â, you can use the following formula:
Break-even period = refinancing Expenses / (Old Monthly Installment - New Monthly Installment)
To know the total money you save from refinancing, you can use the following formula:
Total Money you save = Money you save from refinancing - money you pay for the refinancing expenses.
PS: Money you save from refinancing is the total money you save from refinancing. You should add the saving in monthly installment and the different between new loan balance and old loan balance. Due to the lower interest rate in the new loan, the loan balance will totally different.
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