🔁 Refinance Calculator
A lower payment is not automatically a saving. This compares your current mortgage against the new offer on three measures: the monthly difference, the month you break even on the closing costs, and what each option costs in total from here.
Whether refinancing saves money, or just moves it
Refinancing replaces an existing mortgage with a new one. The pitch is always the lower monthly payment, and the lower payment is always real. Whether it is a saving depends on three things the pitch usually skips: the closing costs, the new term, and how long you will actually stay.
The break-even point
break-even months = closing costs / monthly saving
If refinancing costs $5,200 and saves $314 a month, you recover the costs in month 17. Sell or refinance again before then and the exercise lost money. This is the first test, and it is the one most people do.
The term reset, which most people miss
This is the second test and it changes the answer more often. If you are six years into a 30-year mortgage and refinance into a fresh 30-year term, you have committed to 36 years of payments on the same house. The rate may be lower and the total interest still higher.
| Option | Payment | Months | Total paid |
|---|---|---|---|
| Keep the current loan | $2,004 | 312 | $625,200 |
| Refinance over 30 years | $1,690 | 360 | $613,600 |
| Refinance over 25 years | $1,820 | 300 | $551,200 |
| Refinance over 30, keep paying $2,004 | $2,004 | ~228 | $462,100 |
The last row is the one worth noticing. Refinancing to the lower rate and then voluntarily continuing the old payment clears the loan nineteen years from now instead of twenty-six, and saves over $160,000 against doing nothing. You get the rate improvement without buying it with extra years.
Always compare the refinance against your current loan over the same horizon, not against a fresh 30-year term. The honest question is "what do I pay from today until the house is mine?", not "what is my payment next month?".
Closing costs
| Item | Typical range |
|---|---|
| Origination or lender fee | 0.5% to 1.5% of the loan |
| Appraisal | $400 to $750 |
| Title search and insurance | $700 to $2,000 |
| Legal and recording fees | $300 to $1,000 |
| Points, if buying the rate down | 1% per point |
Total costs commonly run 2% to 5% of the loan. A no-closing-cost refinance exists but is not free: the costs are either added to the balance or paid for with a higher rate, typically 0.25 to 0.5 percentage points. That can still be the right choice if you expect to move within a few years.
When refinancing is clearly right
- The rate drop is a full point or more and you are staying put well past break-even.
- You are moving from an adjustable rate to a fixed one before a reset you cannot absorb.
- Your credit score or equity has improved enough to remove mortgage insurance.
- You are shortening the term, where the saving is large and the payment increase is affordable.
And when it usually is not: when you are late in the term, where most of the remaining payments are principal and there is little interest left to save; when you plan to move within the break-even window; or when the only attraction is a lower payment on a longer term. The mortgage calculator and the amortization calculator show where you currently sit on the curve.
A worked example
A $285,000 balance with 26 years left at 7.1% costs $2,004 a month. Refinancing at 5.9% over 30 years with $5,200 of costs gives $1,690, saving $314 a month and breaking even in month 17. Over the full terms the refinance saves $11,600, but refinancing over 25 years instead saves $74,000, and refinancing over 30 while continuing to pay $2,004 saves $163,000.
Two neighbours worth knowing: the mortgage calculator, for the question this one leads into, and the amortization calculator, which answers it from the other direction.
Frequently Asked Questions (FAQs)
How much lower does the rate need to be?
The old rule of a full percentage point is a reasonable screen, but the real test is the break-even point against how long you will stay. A half-point drop on a large balance with low costs can break even in a year; a full point on a small balance with high costs may never pay back.
What is the break-even point?
Closing costs divided by the monthly saving, giving the number of months until the refinance has paid for itself. Beyond that month you are ahead; before it you are behind. Compare it honestly against how long you realistically expect to keep the house.
Does refinancing restart my mortgage?
Yes, unless you choose a shorter term. A fresh 30-year term on a loan you are six years into means 36 years of payments in total, which is how a lower rate can still cost more. Ask for a term matching your remaining years, or keep paying the old amount.
Is a no-closing-cost refinance really free?
No. The costs are either rolled into the balance, so you pay interest on them, or bought with a higher rate, typically a quarter to a half point. It can still be the better option if you expect to move or refinance again within a few years.
Will refinancing hurt my credit score?
Temporarily and mildly. The application creates a hard enquiry and the new account lowers your average account age, usually costing a few points for a few months. Multiple mortgage enquiries within a short shopping window are normally counted as one.
Can I refinance to take cash out?
Yes, a cash-out refinance increases the balance and gives you the difference. It converts home equity into cash at mortgage rates, which are lower than most alternatives, but it also increases the debt secured on your home and usually carries a slightly higher rate than a plain refinance.