Mortgage Rate Savings Calculator

Mortgage Payment Formula:

\[ PMT = P \times \frac{r}{12} \times \frac{(1 + \frac{r}{12})^{12 \times t}}{(1 + \frac{r}{12})^{12 \times t} - 1} \]

Loan Principal (P):

Old Interest Rate:

decimal

New Interest Rate:

decimal

Loan Term (t):

years

Old Monthly Payment (PMT old):

New Monthly Payment (PMT new):

Monthly Savings:

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1. What is the Mortgage Rate Savings Calculator?

The Mortgage Rate Savings Calculator helps homeowners and potential buyers compare monthly payments between different mortgage interest rates. It calculates the potential savings when refinancing to a lower rate or comparing different loan options.

2. How Does the Calculator Work?

The calculator uses the standard mortgage payment formula:

\[ PMT = P \times \frac{r}{12} \times \frac{(1 + \frac{r}{12})^{12 \times t}}{(1 + \frac{r}{12})^{12 \times t} - 1} \]

Where:

\( PMT \) — Monthly payment
\( P \) — Loan principal amount
\( r \) — Annual interest rate (in decimal form)
\( t \) — Loan term in years

Explanation: The formula calculates the fixed monthly payment required to fully amortize a loan over its term, considering compound interest.

3. Importance of Mortgage Rate Comparison

Details: Even small differences in interest rates can result in significant savings over the life of a mortgage. Comparing rates helps borrowers make informed decisions about refinancing or choosing between loan offers.

4. Using the Calculator

Tips: Enter the loan amount in dollars, interest rates as decimals (e.g., 0.035 for 3.5%), and the loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert percentage rates to decimals?
A: Divide the percentage by 100. For example, 4.25% becomes 0.0425.

Q2: Does this calculator include taxes and insurance?
A: No, this calculates only the principal and interest portion of the mortgage payment. Taxes and insurance would be additional.

Q3: How accurate is this calculator?
A: It provides accurate calculations for fixed-rate mortgages using the standard amortization formula used by most lenders.

Q4: Can I use this for adjustable-rate mortgages?
A: This calculator is designed for fixed-rate mortgages. ARM calculations are more complex as they involve rate changes over time.

Q5: What other costs should I consider when refinancing?
A: Consider closing costs, appraisal fees, and any prepayment penalties that might offset your monthly savings.