Refinance Calculator

About Refinance Calculator

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.

FHA Streamline and VA IRRRL Programs (US)

If your current mortgage is government-backed, you may have access to simplified refinance programs with lower costs and less paperwork:

Feature	FHA Streamline	VA IRRRL (Interest Rate Reduction Refinance Loan)
Eligibility	Must have an existing FHA loan	Must have an existing VA loan
Appraisal required?	Usually not	No
Income verification?	Minimal (no paystubs in many cases)	No
Credit check?	Some lenders skip it	No minimum score required by VA
Net tangible benefit?	Yes - must lower rate by at least 0.5% or switch from ARM to fixed	Yes - must reduce rate or payment
Closing costs	Can be rolled into the loan	Can be rolled into the loan (adds 0.5% VA funding fee)
Wait period	210 days and 6 payments on current loan	210 days and 6 payments on current loan

The VA IRRRL is one of the easiest refinance processes available. No appraisal, no income docs, no credit pull from the VA itself. The main requirement is that the refinance must provide a "net tangible benefit" - meaning your rate goes down or you switch from an adjustable to a fixed rate. The FHA Streamline is similarly lightweight, though individual lenders may add their own requirements on top of the FHA minimums.

UK Remortgage Process and Timeline

In the UK, refinancing is called remortgaging. The process is similar in concept but has some important differences from the US:

1. Check your current deal (day 1): Most UK mortgages have a fixed-rate period (typically 2 or 5 years). When this ends, you move to the lender's Standard Variable Rate (SVR), which is almost always higher. You can start shopping for remortgage deals up to 6 months before your fixed rate expires.
2. Get a Decision in Principle (week 1-2): Apply to new lenders to confirm how much they will lend you. This involves a soft credit check.
3. Full application and valuation (week 2-4): Submit payslips, bank statements, and ID. The lender arranges a valuation (often free for remortgages).
4. Legal work (week 4-8): A solicitor handles the transfer between lenders. Many remortgage deals include free legal fees.
5. Completion (week 6-12): The new lender pays off the old mortgage, and your new deal begins.

Total timeline: typically 4-8 weeks from application to completion, though some lenders can do it faster. Unlike the US, UK remortgage fees are generally lower (£0-£1,500 product fee vs 2-5% closing costs in the US), but the product fee is often added to the loan balance.

Key difference: in the UK, most people remortgage every 2-5 years when their fixed rate expires. In the US, people tend to hold the same mortgage for longer and only refinance when rates drop significantly.

When Refinancing Costs More Than It Saves

There is a common trap with refinancing that the break-even calculation alone does not always catch: refinancing a loan with a short remaining term.

Example: You have 8 years left on a 30-year mortgage at 5.5%, with a remaining balance of $120,000. Your monthly payment is $1,135. You are offered a new 30-year loan at 5.0%.

	Keep Current (8 years left)	Refinance to 30 years at 5.0%
Monthly payment	$1,135	$644
Months remaining	96	360
Total remaining payments	$108,960	$231,840
Total remaining interest	$28,960	$115,340

The monthly payment drops by $491, which looks fantastic. But total interest jumps from $28,960 to $115,340 because you are resetting the clock to 30 years. If you refinance to an 8-year term at 5.0% instead, the payment is $1,112 (saving $23/month) and total interest drops to $22,752. The lesson: always compare against a new loan of the same remaining term, not just the same rate.

Impact of Refinancing on Your Credit Score

Refinancing affects your credit score in several ways:

• Hard inquiry: Each lender application triggers a hard credit pull, which temporarily lowers your score by 5-10 points. However, credit scoring models (FICO and VantageScore) treat multiple mortgage inquiries within a 14-45 day window as a single inquiry, so rate-shopping does not hurt you if you do it quickly.
• New account: The new mortgage is a new account, which lowers your average account age. This can cost 5-15 points in the short term.
• Closed account: Your old mortgage shows as paid off, which is positive in the long run.
• Lower utilization (cash-out): If you do a cash-out refinance and use the money to pay off credit cards, your credit utilization ratio drops, which typically boosts your score.

In practice, most people see a 5-15 point drop after refinancing that recovers within 3-6 months of on-time payments. Do not refinance if you are planning to apply for other credit (car loan, credit card) within the next 3-6 months.

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 check how much you can borrow with a new lender, the mortgage affordability calculator factors in income and debts.

All calculations run in your browser. No data is sent anywhere.

Sources

• CFPB - Deciding Whether to Refinance
• HUD - FHA Streamline Refinance Program
• US Department of Veterans Affairs - VA IRRRL
• FCA - UK Mortgage Regulation and Remortgaging
• MoneyHelper - Remortgaging: Know Your Options
• myFICO - Rate Shopping and Credit Scores
• Freddie Mac Primary Mortgage Market Survey