Refinance Calculator

About Refinance Calculator

Compare your current mortgage against a refinanced loan to see if switching makes financial sense. Enter both loan details and closing costs to see the monthly savings, total interest savings, and the break-even point where the savings recoup the upfront costs.

How Does Mortgage Refinancing Work?

Refinancing replaces your existing mortgage with a new one, typically at a different rate or term. You take out a new loan to pay off the old one, then start making payments under the new terms. The process involves an application, appraisal, underwriting, and closing - similar to the original mortgage but usually faster.

Common reasons to refinance:

• Lower your interest rate (and monthly payment)
• Shorten the term (pay off faster, save on total interest)
• Switch from adjustable rate to fixed rate
• Cash out equity for home improvements or debt consolidation
• Remove PMI/MIP by refinancing at a lower LTV

The Break-Even Calculation

This is the most important number in any refinance decision. The formula is simple:

Break-Even (months) = Closing Costs / Monthly Savings

Worked example: Current mortgage: $280,000 remaining at 7.0%, 25 years left. New offer: 6.0%, 25 years, $6,500 closing costs.

	Current Loan	Refinanced Loan	Difference
Interest rate	7.0%	6.0%	-1.0%
Monthly payment	$1,979	$1,804	-$175/month
Total interest	$313,700	$261,200	-$52,500
Total cost	$593,700	$547,700	-$46,000

• Monthly savings: $175
• Break-even: $6,500 / $175 = 37 months (about 3 years)
• If you stay in the home longer than 3 years, refinancing saves money
• Total savings over the full term (after closing costs): $46,000

How Much Can You Save by Refinancing?

Savings depend on the rate difference, remaining balance, and remaining term. Here are common scenarios for a $300,000 balance with 25 years remaining:

Rate Drop	From	To	Monthly Savings	Total Savings (25yr)	Break-Even ($6K costs)
0.5%	7.0%	6.5%	$95	$22,500	63 months (5.3 years)
1.0%	7.0%	6.0%	$187	$50,100	32 months (2.7 years)
1.5%	7.0%	5.5%	$275	$76,500	22 months (1.8 years)
2.0%	7.0%	5.0%	$359	$101,700	17 months (1.4 years)

A 1% rate drop typically saves $180-200 per month on a $300,000 balance and breaks even in about 2.5-3 years. As a general rule, refinancing is worth considering when rates drop at least 0.75-1% below your current rate.

Typical Closing Costs for Refinancing

Expect to pay 2-5% of the loan amount in closing costs. On a $300,000 refinance:

Cost Item	Typical Range
Appraisal fee	$300 - $600
Origination fee (0.5-1%)	$1,500 - $3,000
Title search and insurance	$500 - $1,500
Recording fees	$50 - $250
Credit report	$30 - $50
Application fee	$0 - $500
Escrow/attorney fees	$500 - $1,000
Total	$3,000 - $7,000

Some lenders offer "no-closing-cost" refinances where they cover the fees in exchange for a slightly higher rate (typically 0.125-0.25% more). This can make sense if you are not sure how long you will stay, since there is no upfront cost to recoup.

Refinancing to a Shorter Term

Instead of just lowering the rate, some borrowers refinance to a shorter term. This raises the monthly payment but saves substantially on total interest:

Example: $280,000 remaining, 25 years left at 7.0%. Two refinance options:

	25-Year at 6.0%	15-Year at 5.5%
Monthly payment	$1,804	$2,288
vs current ($1,979)	-$175/month	+$309/month
Total interest	$261,200	$131,840
Total savings vs current	$52,500	$181,860

The 15-year option costs $309 more per month but saves $181,860 in total interest and pays off the mortgage 10 years sooner. If you can afford the higher payment, the shorter term is dramatically cheaper overall.

When Refinancing Does NOT Make Sense

• You are moving soon: If you plan to sell within 2-3 years, you may not reach the break-even point on closing costs.
• Small rate difference: Dropping from 6.5% to 6.25% saves very little and takes years to break even on fees.
• Low remaining balance: On a $50,000 balance, a 1% rate drop only saves about $30/month. Closing costs of $3,000 take 100 months (8+ years) to break even.
• Near the end of your term: If you have 5 years left on a 30-year mortgage, you are mostly paying principal. Refinancing restarts the interest-heavy early period.
• Cash-out for non-essential spending: Using a cash-out refinance for a holiday or a car converts short-term spending into 30-year debt.

Rate-and-Term vs Cash-Out Refinance

	Rate-and-Term	Cash-Out
Purpose	Lower rate and/or change term	Borrow against home equity
Loan amount	Same or less than current balance	More than current balance
Rates	Typically lower	Usually 0.125-0.5% higher
LTV limit	Up to 97%	Usually capped at 80%
Best for	Saving on interest	Home improvements, debt consolidation

For monthly payment estimates on a new mortgage, use the mortgage calculator. To see the impact of making extra payments instead of refinancing, the mortgage overpayment calculator compares monthly and lump-sum overpayments. To compare the true APR of different offers with fees, try the APR calculator.

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