How is the benefit of refinancing typically approximated?

Refinancing typically involves evaluating how much monetary benefit a borrower will gain from obtaining a new loan at potentially lower interest rates. The benefit is often approximated by taking the difference between the current loan payment and the new loan payment, which reflects the reduction in monthly payments.

To quantify this benefit more effectively, this reduction is then multiplied by the number of months that the borrower expects to retain the new loan. For instance, if a borrower finds that their monthly payment will decrease by a certain amount after refinancing, this savings accumulates over time. By estimating how long they plan to keep the loan, borrowers can project their total savings as a direct result of the reduced payments. This method provides a clear and practical way to evaluate the financial advantages of refinancing, allowing borrowers to determine if the potential cost savings justify any fees or costs associated with the refinancing process.

Other strategies, while they may play a role in understanding the broader context of refinancing benefits, do not provide a straightforward calculation of immediate financial benefits in the same clear manner as multiplying the monthly payment difference by the expected loan duration.