How Much Will A Refinance Will Save You?

Summary

Lowering your monthly mortgage payment is a primary financial goal of many people.

Here is how to figure out how much lower your mortgage payment can get.

Loan Payment Basics

Your monthly loan payment is based on several factors, including the interest rate, the loan term, and the loan type.

The interest rate is a basic factor. Obviously the higher your interest rate is the higher your monthly payment will be.

The loan term is a critical factor. A 15 year mortgage loan will have a relatively high monthly payment.

If you switch the same loan size and interest rate to a 30 year loan term you monthly payment size will decrease dramatically.

Mortgage loan terms are now offered for 40 years, 45 years, and 50 years. The longer loan terms help borrowers get lower monthly payments than a comparable 30 year loan term.

Loan Type

Your loan type can also affect your monthly payment.

If you have an interest only mortgage your payment will be smaller than a comparable mortgage. This is because you are making only an interest payment and not paying off any of the principal of the loan. The loan balance will remain the same.

A minimum payment option loan allows you to pay less than interest only. This makes for a very low monthly payment. The interest rate on this may be higher, but initial payments for several years may be much lower than any other loan alternative. The borrower risks negative amortization when they pay less than the interest only amount. Negative amortization is when a loan increases in size.

Figuring Out Your Payment

There are many free online mortgage calculators.

These should be able to figure out your monthly payment on a regular loan.

An interest only payment is the loan amount multiplied by the interest rate and divided by twelve (to figure out the monthly payment). You will notice that the loan term does not figure into this equation.

Your minimum payment option should be easy enough to calculate through an online mortgage calculator. This calculator will usually show you the minimum payment, the interest only payment, the 30 year payment, and the 15 year payment. You can then compare all these different payment sizes.