Refinance Calculator
Work out whether refinancing pays — the monthly saving, the break-even point on closing costs, and the effect on lifetime interest.
How to use this calculator
- 1Enter your current balance, rate and how many payments remain — not the original loan amount.
- 2Add the new rate you have been quoted and the term on offer.
- 3Enter the real closing costs from the loan estimate. This is the figure the whole decision turns on.
- 4Check the three-way table. Matching the new term to your remaining payments is often the best option and is rarely offered by default.
How the calculation works
Break-even months = Closing costs / (Current payment − New payment)- Closing costs
- Fees to complete the refinance — origination, appraisal, title, recording
- Current − New payment
- The monthly saving the refinance produces
The break-even point is the decision. Below it the refinance loses money; above it, it pays. If you might move before break-even, do not refinance.
Lifetime interest is computed from full amortisation schedules on both loans, so it reflects what is actually paid rather than a rate comparison.
A lower rate on a longer term can still cost more overall. Extending the term is a separate decision from cutting the rate, and bundling them hides that.
Worked example
$280,000 at 7.25% with 276 payments left, refinancing to 6.0%
- 1.The current payment on $280,000 at 7.25% over 276 months is about $2,020.
- 2.A new 30-year loan at 6.0% gives about $1,679 — a saving of roughly $341 a month.
- 3.Break-even: $5,600 ÷ $341 ≈ 17 months. Stay longer than that and the refinance pays.
- 4.But the new loan runs 360 months instead of 276, so check the lifetime column before deciding.
Result: About $341 a month saved, break-even around 17 months
What refinancing actually is
Refinancing means taking out a new loan to pay off an existing one, usually a mortgage. The old debt is closed out immediately with the proceeds of the new loan, and you continue making payments — just on different terms: a different rate, a different remaining term, or both. Nothing about the property changes; only the financing behind it does.
Because it is a brand-new loan, refinancing goes through much of the same process as the original mortgage — an application, a credit check, often a new appraisal — and it comes with its own closing costs, even though no home is actually changing hands.
Why people refinance
A refinance is usually aimed at one of a few specific goals, and knowing which one you are pursuing changes what a good deal even looks like.
- Lowering the rate — the most common reason — replacing a higher-rate loan with a lower-rate one when market rates fall or your credit has improved since the original loan.
- Changing the term — switching to a shorter term to pay off the debt faster and cut lifetime interest, or to a longer one to lower the monthly payment.
- Moving off an adjustable rate — converting an adjustable-rate mortgage to a fixed rate to lock in payment certainty before the rate can reset higher.
- Removing mortgage insurance — refinancing once enough equity has built up can sometimes eliminate a mortgage insurance requirement that a rate reduction alone would not.
- Cash-out refinancing — borrowing more than the current balance and taking the difference in cash, effectively converting home equity into spendable money — usually at a lower rate than other forms of borrowing, but secured against the home.
What refinancing actually costs
A refinance is not free, and the fees are the whole reason the break-even calculation matters.
- Closing costs — origination, appraisal, title and recording fees charged to set up the new loan, generally similar in kind to what was paid on the original mortgage.
- Points — an optional upfront fee paid to buy down the interest rate — one point typically costs 1% of the new loan amount, paid to the lender in exchange for a lower rate over the life of the loan.
The break-even point, in plain terms
If a refinance lowers the monthly payment, the fees paid to get that lower payment are recovered gradually, one month of savings at a time. The break-even point is simply how long that recovery takes — divide the total fees by the monthly saving. Before that point, the refinance has technically cost more than it has saved; after it, every additional month is a net gain.
The number that gets skipped over in most sales pitches is how long you actually plan to keep the loan. A refinance with a two-year break-even is a very different proposition for someone settled in a home for a decade than for someone likely to move or refinance again within eighteen months.
When refinancing usually is not worth it
A few situations make a seemingly attractive refinance a net loss in practice.
- Moving, selling or refinancing again before the break-even point is reached, which means the fees are never fully recovered.
- Resetting a loan back to a full new term late into an existing mortgage, which can increase total lifetime interest even at a lower rate, because interest keeps accruing for more months overall.
- A rate improvement too small to clear the fees within a reasonable time frame — a fraction of a percentage point rarely justifies the cost on its own.
What this assumes, and where it stops
Assumptions
- Both loans are fixed-rate and fully amortising.
- Closing costs are paid at completion, either up front or added to the balance.
- No prepayment penalty on the existing loan.
Limitations
- Tax treatment of mortgage interest varies by jurisdiction and is not included, and cash-out proceeds may have different tax treatment than the mortgage itself depending on how they are used.
- Points here only add their cost to the closing costs — this calculator does not verify that the rate you entered is actually what those points buy from a specific lender.
- It cannot tell you how long you will stay in the house, which is the input the decision actually depends on.
Common questions
What is a good break-even point for refinancing?
Shorter than how long you will realistically stay. Two years is comfortable for most people; five is a genuine gamble. If break-even lands beyond the point you expect to move or refinance again, the fees will never be recovered.
Why does a lower rate sometimes cost more overall?
Because refinancing usually restarts the term. Seven years into a 30-year loan, taking a fresh 30-year loan means paying interest for 37 years in total. The rate is lower but the period is longer, and the second effect frequently wins. Matching the new term to your remaining payments avoids it.
Should I roll the closing costs into the loan?
It preserves cash but you then pay interest on the fees for the whole term — often adding 60–80% to their real cost on a 30-year loan. Pay up front if you can; the calculator shows both.
Sources
- When should you refinance? — US Consumer Financial Protection Bureau
Formula and content last reviewed on .
Results are estimates for information only, not professional advice.
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