How to Calculate a Home Mortgage Refinance Rate
Understanding the essential documents and numbers of a home mortgage refinance can simplify and ease the strain of the transaction. Learn to correctly calculate a refinance rate when looking to adjust a home loan.
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Instructions
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How to Calculate a Home Mortgage Refinance Rate
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Calculate the rate of your current mortgage for practice. Remove all the mortgage paperwork from your current home mortgage and look for a document entitled, "Loan Agreement." This document breaks down the original terms of your mortgage: principal loan amount, monthly payment, APR (annual percentage rate) and contract rate. Plug in your mortgage information into the calculator at Bankrate.com (see Resources). The rate displayed should match the APR on your paperwork.
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Research lenders. In order to calculate a new mortgage rate, you will need new loan terms to work with. Depending on the purpose of the refinance, the terms will change. For example, if you're refinancing to take cash out for consolidation or home improvements, you'll need to figure a new principal balance. Don't apply to too many lenders as many credit pulls will drop your credit score.
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Collect all mortgage offers from lenders. Ask for each offer to contain the following: principal balance, APR, contract rate, amount financed, and any addendums to the contract (adjustable rate riders, prepayment penalty riders). Plug each offer into the mortgage calculator to confirm the rate that each lender is offering.
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Pull a copy of your credit report. With your credit score, you can accurately determine the range of rates you would most likely qualify for. Use this information in the mortgage calculator.
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Work up your own proposal that was not offered by a lender. Take into account any special considerations you may have (extra cash out, lower payments). Experiment with the mortgage calculator to determine which monthly payment you can afford based on your needs and what rate that would require. If your credit score is above 720, you should qualify for the lowest mortgage rate available; if your score is between 650 to 720, you'll probably score 50 basis points (0.5 percent) higher than the lowest rate. Check MyFICO.com for how your score might correspond to a mortgage rate.
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