Loan Refinancing: 5 Calculations Before You Sign a New Agreement

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A borrower compares old and new loan repayment schedules with a calculator against Yerevan and Mount Ararat

Summary. A lower interest rate does not automatically make refinancing worthwhile. Compare the same remaining term, every new-loan fee, and the number of months needed for monthly savings to recover switching costs. This guide applies five checks to an illustrative AMD 2 million balance.

Publication date: 9 November 2026. Data checked: 9 November 2026.

What refinancing means

Refinancing replaces an existing loan with a new one. The goal may be a lower rate or payment, a shorter term, or consolidating debts. Start with today's outstanding principal and current repayment schedule, not the original loan amount.

1. Get an exact snapshot of the current loan

Ask the lender for the outstanding balance, remaining schedule, the exact full-settlement amount for that date, and the closing procedure. Separate any arrears or accumulated charges from principal.

2. Compare the same remaining term first

If 24 months remain, first price the new offer over 24 months. Only then test a longer term. This prevents a smaller monthly payment from hiding a larger total cost.

3. Add every mandatory cost

Compare the annual percentage rate as well as the nominal rate. Armenia's CBA Fininfo explains that the effective rate captures most mandatory origination and servicing costs, while some costs may still sit outside it. List origination, account, transfer, insurance, appraisal and any other charges separately.

4. Calculate savings and break-even

Illustration: AMD 2,000,000 outstanding, 24 months left, 20% nominal annual rate. The new offer is 16% for the same 24 months with a one-off AMD 30,000 switching cost. The calculation assumes monthly annuity payments and excludes insurance and other charges.

  • Current loan: 20%, 24 months. About AMD 101,792 per month and AMD 2,442,999 total over 24 months.
  • New loan: 16%, 24 months. About AMD 97,926 per month, AMD 2,350,229 in loan payments, or AMD 2,380,229 including the AMD 30,000 switching cost.
  • New loan: 16%, 36 months. About AMD 70,314 per month, AMD 2,531,306 in loan payments, or AMD 2,561,306 including the switching cost.

At 24 months, the monthly saving is about AMD 3,865. The AMD 30,000 switching cost is recovered in about 7.8 months: 30,000 ÷ 3,865. Illustrative net savings over 24 months are about AMD 62,769: 2,442,999 − 2,350,229 − 30,000.

Extending the new loan to 36 months reduces the payment by about AMD 31,478, but raises total cost including the stated fee to roughly AMD 118,307 above the current loan. That is the low-payment, high-total-cost trap.

5. Run three stress tests

  • Early exit: if you expect to repay within eight months, the switching cost in this example may not be recovered.
  • Income shock: test whether you can still pay after a 15–20% income drop.
  • Variable terms: if the rate can change, request a higher-rate scenario.

Early repayment in Armenia

CBA Fininfo states that a consumer loan may be repaid fully or partly ahead of schedule without a fine or penalty. When paying more than the scheduled instalment, explicitly instruct the lender to reduce principal and obtain an updated schedule. For other loan types, check your contract and the applicable rules.

What this means for the reader

A useful refinance must serve a defined goal. To reduce total cost, compare equal terms and total repayment. To reduce monthly pressure, a longer term may help cash flow, but display the price of that flexibility as a separate number.

Final checklist

  1. Obtain the official balance and full-settlement figure.
  2. Compare the same amount and remaining term.
  3. Record the APR and every cost outside it.
  4. Calculate total cost, net saving and break-even month.
  5. Check the total cost of any extended term before deciding.

Conclusion. Do not sign merely because the new payment is smaller. Request a written offer and repayment schedule, place the figures in one table, and choose the option that meets your goal at an acceptable total cost. This is educational information, not personal financial or legal advice.

Sources

Category: Financial literacy. Tags: refinancing, loan, interest rate, debt, budget.