Refinance Calculator
Compare your current mortgage with a refinanced one to see the monthly saving, how many months it takes to recover the closing costs, and whether it pays off.
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When refinancing makes sense
Refinancing replaces your existing mortgage with a new one, usually at a lower rate, a different term, or both. The monthly saving is easy to calculate and usually the reason people do it. What is easy to miss is that refinancing costs money up front, typically 2 to 5 percent of the loan amount in lender fees, title insurance, appraisal and recording charges, and you have to stay in the home long enough for the monthly saving to recover those costs.
That recovery point is the break-even, and it is the single most useful number in this decision. On a 300,000 dollar balance moving from 6.5 percent to 5.5 percent over 25 years, the payment falls from 2,025.62 dollars to 1,842.26 dollars, a saving of 183.36 dollars a month. With 4,500 dollars of closing costs, the break-even is 25 months. If you expect to sell or move within two years, the refinance loses money; beyond that, it is worth serious consideration.
Watch the term as carefully as the rate. Stretching a loan that has 18 years left back out to 30 years lowers the monthly payment but can increase the total interest you pay, because you are borrowing for longer. This calculator compares the two loans over the shorter of the two horizons, which is the honest comparison: you cannot fairly compare 25 years of payments against 30.
There is also the question of whether to finance the closing costs into the new loan. It reduces the cash you need on the day but increases the balance and therefore the interest, and it pushes the break-even further out. The calculator assumes costs are paid up front, which makes the break-even you see the most favourable version of the answer.
How the break-even is calculated
Compare the two payments, then divide the cost of refinancing by the monthly saving to find how many months it takes to come out ahead.
| Symbol | Meaning |
|---|---|
Old payment |
Principal and interest on the current loan for its remaining term |
New payment |
Principal and interest on the new loan for its term |
Closing costs |
All fees paid to complete the refinance |
If the new payment is not lower, the refinance never breaks even. In that case the calculator says so rather than showing a misleadingly small number of months.
Worked example: 6.5 percent down to 5.5 percent
A 300,000 dollar balance with 25 years remaining, refinanced at 5.5 percent over 25 years with 4,500 dollars of closing costs.
| Figure | Result |
|---|---|
| Current payment | $2,025.62 |
| New payment | $1,842.26 |
| Monthly saving | $183.36 |
| Annual saving | $2,200.31 |
| Closing costs | $4,500 |
| Break-even | 25 months |
| Lifetime interest saving | $55,007.70 |
| Net saving after costs | $50,507.70 |
The refinance pays for itself after just over two years and saves about 183 dollars a month thereafter. Over the remaining 25 years the interest saving is roughly 55,000 dollars against 4,500 dollars of costs. If you were planning to move within two years, the same refinance would have been a loss.
Estimates only. Your lender's figures may differ because of fees, escrow and rounding.
Getting the refinance decision right
Shop at least three lenders
Rate differences of a quarter point between lenders are common, and on a 300,000 dollar loan that is worth thousands over the term. Ask each for a Loan Estimate in the same format and compare line by line rather than comparing advertised rates.
Do not stretch the term just to lower the payment
Going from 18 years remaining to a new 30-year term can cut the monthly payment while raising the total interest you pay. If the goal is to pay less overall, keep the new term at or below the remaining term of the old loan.
Ask whether the break-even fits your plans
Divide the closing costs by the monthly saving and compare the result with how long you realistically expect to stay. If the answer is longer than your horizon, the refinance is a cost rather than a saving, however attractive the rate looks.
Consider a no-cost refinance carefully
A no-cost refinance rolls the fees into a slightly higher rate. It removes the break-even problem entirely, which can suit a short horizon, but you pay the higher rate for as long as you hold the loan. Compare it against paying costs up front over the period you expect to stay.
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Frequently asked questions
How long do I need to stay to make refinancing worthwhile?
Long enough to pass the break-even point, which is the closing costs divided by the monthly saving. In the example on this page that is 25 months. If you might move or sell before that, the refinance will cost you money rather than save it.
What is a good rate drop to justify refinancing?
There is no universal figure, because closing costs vary so much between loans and states. A drop of 0.75 to 1 percentage point is a common rule of thumb, but the break-even calculation is what actually decides it. Run your own numbers rather than relying on the rule.
Does refinancing hurt my credit score?
It usually causes a small, temporary dip from the hard credit inquiry and from the new account, then recovers. Rate shopping within a short window is generally treated as a single inquiry by the main scoring models, so comparing several lenders in a few weeks is not punished.
Can I refinance if I have less than 20 percent equity?
Yes, but you will likely pay mortgage insurance, and some programs have minimum equity requirements. Options vary considerably between conventional, FHA and VA refinances, so discuss your specific situation with a few lenders before assuming it is not possible.
Should I refinance to a shorter term?
Moving to a 15-year term raises the monthly payment but usually saves a large amount of interest and clears the loan much sooner. It is generally the stronger choice if the higher payment is comfortably affordable and you are not relying on the lower payment for other goals.