My Dad told me that if I refinance my home and drop my interest rate by 2% I can save quite a bit on monthly mortgage payments. I’m skeptical. Is there any sort of interactive mortgage calculator I can use to see how interest rate affects payments?
As a father, it gives me great joy to say your Dad is correct! In fact, it’s startling how much difference a single point on a long-term loan can make in both payments and the overall amount paid to the lender.
For example, if you were poised to buy a new home in a fancy area like Cherry Creek in Denver, Colorado, and needed to borrow $500,000 to close the sale, your monthly payments on a 30-year fixed loan at 6.5% would be $3,160. Calculate that out and you’ll be paying the bank $3,160 * (12 months * 30 years) or $1.13 million dollars.
GOOGLE MORTGAGE CALCULATOR
I’m calculating all of these values the same way you should: Google “mortgage calculator” and you’ll find a handy calculator preloaded with the US Prime Rate as the default interest rate on the results page. No need to visit a site or sign up for a service. You can, of course, change the interest rate to something else, like an even 6.5%, as I have done below:
Using this online calculator, we can see that a drop of even 0.5% on the interest rate drops payments down from $3,160 to $2,998. Drop that down 2%, as your Dad suggests, and it plummets to $2,533, a savings of $627 per month. Much more importantly, over the life of the loan, you’ll save over $225,000.
So yes, those interest rates can have a significant effect on your payments and the overall cost of the loan.
ONLINE CAR LOAN CALCULATOR
This is also true if it’s something shorter like a typical car loan, as you can also verify with an online calculator.
For reasons I cannot explain, you’ll have to use a third-party calculator for this task: Neither Google nor Bing thinks “car loan calculator” is sufficiently interesting to offer up a similar streamlined tool.
I suggest calculator.net which has lots of easy tools and isn’t tied to a bank or loan company (so you won’t subsequently get spammed with car loan offers).
Using this tool, you can quickly ascertain that a $30,000 loan over 5 years at 4.5% with a $5,000 down payment will have payments of $449/month. Be careful with the added fees and taxes it tacks on to the calculations to ensure you don’t have any surprises.
What if that interest rate bumped up to 6.5%? The monthly payment then moves up to $489/month. Doesn’t sound like a lot, but that’s an additional $2,400 you’ll be paying over the lifetime of the loan. Car loans are also not immune to the surprising impact that a small interest rate change can have on your overall financing.
THERE’S ALSO A SCIENTIFIC CALCULATOR
Before we wrap up, a handy tip: Search for “calculator” on Google and you’ll find a scientific calculator appears, ready to solve cosines, square roots, factorial, and much more:
Why it doesn’t let you switch to a “financial” calculator is odd, but remember you can search for “mortgage calculator” to find it instead. Need to do other calculations? If it’s a formula, try simply entering it into the search box and see what happens when you seek the answer. Nifty, eh?
Pro Tip: I have quite a few tutorials and articles on computer basics, from Comcast to your GPS or Smart TV. Please check out my computer basics help library to check it all out while you’re visiting. Thanks!