Student Loan Refinance Calculator Formula
Understand the math behind the student loan refinance calculator. Each variable explained with a worked example.
Formulas Used
Monthly Savings
monthly_savings = current_pmt - new_pmtTotal Interest Savings
total_savings = (current_pmt - new_pmt) * nNew Monthly Payment
new_monthly = new_pmtVariables
| Variable | Description | Default |
|---|---|---|
balance | Current Loan Balance ($) | 40000 |
current_rate | Current Interest Rate (%) | 6.8 |
new_rate | Refinanced Rate (%) | 4.5 |
term_years | Loan Term (years) | 10 |
cr | Derived value= current_rate / 100 / 12 | calculated |
nr | Derived value= new_rate / 100 / 12 | calculated |
n | Derived value= term_years * 12 | calculated |
current_pmt | Derived value= balance * cr * pow(1 + cr, n) / (pow(1 + cr, n) - 1) | calculated |
new_pmt | Derived value= balance * nr * pow(1 + nr, n) / (pow(1 + nr, n) - 1) | calculated |
How It Works
How to Calculate Refinance Savings
Refinancing replaces your current loan with a new one at a lower rate.
Savings Formula
Monthly Savings = Current Payment - New Payment
Total Savings = Monthly Savings x Number of Payments
Both payments use the standard amortization formula with respective interest rates.
Worked Example
Refinancing a $40,000 loan from 6.8% to 4.5% over 10 years.
balance = 40000current_rate = 6.8new_rate = 4.5term_years = 10
- 01Current monthly payment at 6.8% = $460.32
- 02New monthly payment at 4.5% = $414.02
- 03Monthly savings = $460.32 - $414.02 = $46.30
- 04Total savings over 10 years = $46.30 x 120 = $5,556
Ready to run the numbers?
Open Student Loan Refinance Calculator