Compare a new loan against your current payment to see monthly and lifetime savings from refinancing.
How the Mortgage Refinance Calculator works
This tool answers one question: will refinancing actually save you money, and how many months until the savings repay your closing costs? Unlike a plain mortgage calculator that prices a single loan in isolation, this is a comparison engine - it pits a brand-new loan against the payment you already have.The new payment uses the standard amortization formula:
M = B x [ i(1+i)n ] / [ (1+i)n - 1 ]
- M = new monthly principal and interest payment
- B = balance being refinanced (current payoff, plus any cash-out and any rolled-in costs)
- i = new monthly rate = annual rate / 12 (so 5.5% becomes 0.055/12 = 0.0045833)
- n = new number of monthly payments (a fresh 30-year term = 360)
Here is what the tool does internally:
- Takes your current payment (principal and interest only) as the baseline.
- Builds the new payment M from your new balance, new rate, and new term.
- Computes monthly savings = old payment - new payment.
- Computes break-even months = total closing costs / monthly savings.
- Compares lifetime interest on the new loan against the interest left on your current loan, so a lower payment that quietly costs more over time gets flagged.
That last step is what separates a refinance calculator from a mortgage calculator. A mortgage calculator never asks what you currently owe or pay; this one needs both, because the verdict is a difference between two loans, not the cost of one.
Edge cases it handles: a 0% rate (payment becomes B / n); a new payment that is higher than the old (common in cash-out or shorter-term refis, so it reports payback as interest saved rather than monthly cash); rolling closing costs into the balance versus paying them in cash; and shorter terms (15 or 20 years) where the monthly payment rises but lifetime interest falls sharply.
]]>Example calculation
Three refinances, three very different verdicts. Every payment below is principal and interest only, recomputed with the formula above.Example 1 - Straight rate-and-term. You owe $300,000 with a current payment of $1,896/mo (6.5%, 30-year). You refinance to 5.5% on a new 30-year term. New payment = $1,703/mo, so you save $193/mo. Closing costs at 3% = $9,000. Break-even = $9,000 / $193 = about 47 months (3.9 years). If you will keep the home longer than 4 years, it pays off.
Example 2 - The fresh-30 trap. You are 10 years into a $350,000, 6.75% loan. Your balance is $298,554, payment $2,270/mo, with 20 years left and roughly $246,000 of interest still to pay. Refinancing to a fresh 30-year at 6.0% drops the payment to $1,790 - a tempting $480/mo cut. But stretching 20 remaining years back out to 30 adds about $99,600 in lifetime interest. Refinance instead to a 20-year at 6.0%: the payment is $2,139 (about $131/mo less than now) and you save roughly $31,500 in interest while keeping your original payoff date.
Example 3 - Cash-out. You owe $250,000 at 6.0% ($1,499/mo) and pull out $50,000, creating a new $300,000 loan at 6.25% (cash-out rates run higher), 30-year. New payment = $1,847/mo - it goes up $348/mo. There is no monthly "savings" here; the question becomes whether the $50,000 is worth roughly $348/mo for 30 years.
| Scenario | Old pmt | New pmt | Monthly change | Verdict |
|---|---|---|---|---|
| 1. Rate-and-term (5.5%, new 30yr) | $1,896 | $1,703 | -$193 | Break-even 47 mo |
| 2a. Fresh 30yr at 6.0% | $2,270 | $1,790 | -$480 | +$99,600 interest (trap) |
| 2b. 20yr at 6.0% | $2,270 | $2,139 | -$131 | Saves ~$31,500 interest |
| 3. Cash-out (+$50k, 6.25%) | $1,499 | $1,847 | +$348 | Higher pmt for cash |
Notice scenario 2: the biggest monthly drop is the worst long-term deal. Always check lifetime interest, not just the payment.
]]>Tips for using the Mortgage Refinance Calculator
- <strong>Reset your term mentally, not just your rate.</strong> If you are 8 years into a 30-year loan, refinance into a 22-year (or 20-year) term, not a fresh 30. Stretching the clock is how a lower rate still costs you tens of thousands more - the fresh-30 example above adds about $99,600 in interest.
- <strong>Use break-even months, not the dollar savings, to decide.</strong> A $300/mo savings is irrelevant if you sell in 18 months and break-even is 30 months - you would lose money. Match break-even against how long you will realistically stay.
- <strong>Compare principal-and-interest only.</strong> Strip taxes, insurance, and any PMI out of both the old and new payment before you compute savings, or the calculator will flatter the refi.
- <strong>Treat a no-closing-cost refi as a higher rate, not free.</strong> The lender prices the costs into the rate (often 0.25-0.5% more). On a $300,000 loan a 6.5% no-cost option costs about $98/mo more than 6.0% with $9,000 in fees, so the upfront-fee path only wins after roughly 92 months - it loses if you move first.
- <strong>Watch the 0.75% rule, but do not worship it.</strong> A 0.5% drop on a small balance rarely beats closing costs (break-even can exceed 7 years), while 0.5% on a large balance can pay back in two to three. Run your own break-even with the real numbers.
- <strong>Rolling closing costs into the balance is borrowing at your mortgage rate.</strong> It preserves cash but you pay interest on those fees for the full term - factor that into break-even, do not pretend the refi was free.
- <strong>Cash-out raises your rate and resets PMI risk.</strong> Pulling equity above 80% loan-to-value can trigger mortgage insurance and a pricing hit; keep the new loan at or below 80% LTV if you can.
- <strong>Do not refinance away a low rate to consolidate debt.</strong> Cash-out at 6%+ to pay a 22% credit card sounds smart, but you convert short-term unsecured debt into 30 years of secured debt against your home - run a <a href="/debt-payoff-calculator/">debt payoff calculator</a> first.
- <strong>Recast before you refinance if you only want a lower payment.</strong> If your goal is a smaller bill and you have a lump sum, a recast (re-amortizing the existing loan) costs a few hundred dollars instead of thousands and keeps your current rate.
- <strong>Lock-in costs and the appraisal can move the math.</strong> A required appraisal, points, and lender fees all inflate closing costs - get the official Loan Estimate and plug the real total into break-even, not a 2% guess.
Rate-and-term vs cash-out refinance
A rate-and-term refinance changes only your interest rate or payoff schedule; a cash-out refinance also increases the balance to hand you equity in cash. They are priced and judged differently, so the calculator treats them differently.
With rate-and-term, success is measured by monthly savings and break-even. With cash-out, the payment usually rises, so the question is whether the borrowed cash is worth its long-run cost. In Example 3 above, pulling $50,000 turned a $1,499/mo payment into $1,847/mo even though both loans are near 6% - the extra $348/mo is the price of the cash, not a saving. Cash-out loans almost always carry a higher rate (often 0.25-0.5% more) and stricter loan-to-value limits.
| Feature | Rate-and-term | Cash-out |
|---|---|---|
| Balance changes? | No (or only rolled-in costs) | Yes - you add to it |
| Typical rate | Lower | Higher |
| Payment direction | Usually down | Often up |
| Main metric | Break-even months | Cost of the cash |
| LTV limit | More flexible | Usually capped near 80% |
If your real goal is renovation or a large purchase, also compare a home equity loan, which keeps your first mortgage and its rate untouched instead of replacing the whole loan.
The break-even point: the number that decides it
Break-even = total closing costs / monthly savings, expressed in months. It is the single most important output of a refinance, because every refinance trades an upfront cost for a smaller recurring payment.
Closing costs typically run 2% to 5% of the loan amount. On a $300,000 refi that is $6,000 to $15,000. Watch how break-even stretches as costs climb against a fixed $193/mo savings:
| Closing costs | Amount | Break-even |
|---|---|---|
| 2% | $6,000 | 31 months |
| 3% | $9,000 | 47 months |
| 5% | $15,000 | 78 months |
The rule: only refinance if you will stay in the home past the break-even date. Plan to move in three years but break-even is five? You lose money even at a lower rate. If you are unsure how long you will stay, lean toward a lower-cost or no-cost option so the break-even is short. This is the metric a plain mortgage calculator cannot give you, because it never knows what you are paying today.
The fresh-30-year trap (lower rate, more interest)
A lower rate can still cost you more if you restart the loan term - this is the most expensive refinance mistake. Interest is charged on the balance over time, so adding years can outweigh a smaller rate.
Take the homeowner 10 years into a $350,000, 6.75% loan with 20 years and about $246,000 of interest left. Refinancing to a fresh 30-year at 6.0% cuts the payment by $480/mo - but adds about $99,600 in lifetime interest, because they just signed up for 10 extra years of payments. Refinancing to a 20-year at 6.0% instead trims the payment by $131/mo and saves roughly $31,500 in interest while keeping the original payoff date.
The fix is simple: refinance into a term equal to (or shorter than) the years you have left. If you cannot stomach the higher payment of a shorter term, you can take the fresh 30-year for cash-flow relief but voluntarily pay extra - model that with the extra payment mortgage calculator to claw the interest back. Either way, judge the refinance on lifetime interest, not the headline monthly drop.
Common mistakes
Most refinance regret comes from judging the deal by the monthly payment alone. Avoid these specific traps:
- Comparing full payments instead of P&I. Including taxes and insurance in only one side makes the new loan look better than the rate alone justifies.
- Ignoring the reset term. A 1% rate drop into a fresh 30-year can still raise total interest - always check lifetime cost, not just the payment.
- Forgetting break-even versus how long you will stay. Savings only count if you outlast the break-even date.
- Treating no-closing-cost as free. You pay through a higher rate for the life of the loan.
- Rolling costs into the balance and calling the refi costless. You finance those fees for the full term at your mortgage rate.
- Cash-out to pay off cards without changing spending. The cards fill back up and now the debt is secured by your home.
- Chasing a tiny rate drop. On a modest balance, a 0.5% drop can have a break-even beyond seven years.
Do it by hand or in Excel
You can reproduce this calculator with one spreadsheet function. Excel and Google Sheets both have a built-in payment function.
New monthly payment:
- =PMT(rate/12, years*12, -balance)
- Example: =PMT(0.055/12, 360, -300000) returns $1,703.37, the Example 1 new payment.
Then build the decision the way the refinance calculator does:
- Monthly savings: =OldPayment - PMT(...)
- Break-even months: =ClosingCosts / MonthlySavings
- Total interest on the new loan: =PMT(...)*nper + balance (the PMT result is negative, so adding the balance yields total interest paid - compare this against the interest still left on your current loan to catch the reset-term trap).
The negative sign on balance flips PMT to a positive payment. Want to find the rate that makes a refi worthwhile? Use =RATE(nper, -payment, balance) to back into the breakeven rate. For the underlying time-value math, the loan calculator shows the full amortization schedule behind these formulas.
Is this refinance good? Benchmarks
A refinance is generally worth it when the rate drop, break-even, and remaining time all line up. Use these reference points to sanity-check your result:
| Metric | Weak deal | Strong deal |
|---|---|---|
| Rate drop | Under 0.5% | 0.75% or more |
| Break-even | Over 5 years | Under 2-3 years |
| Time you will stay | Less than break-even | Well past break-even |
| New term vs years left | Longer (resets clock) | Equal or shorter |
| Closing costs | 5%+ of balance | 2% or no-cost |
The old 0.75% to 1% rate-drop rule is a starting filter, not a verdict - a 0.5% drop on a large balance can beat a 1% drop on a small one. Always finish with the break-even calculation, then check that your remaining term does not lengthen. Come back to this comparison tool whenever you are weighing a new loan against one you already hold.
Refinance break-even quick reference: closing costs divided by monthly savings
Break-even months equal your total closing costs divided by your monthly payment savings, and at a fixed rate drop with a fixed closing-cost percentage that timeline barely changes with loan size. The table below shows a 1-point rate drop from 7% to 6% on a 30-year loan, with closing costs set at 3% of the balance. Notice the break-even stays near 46 months across every loan amount, because the dollar savings and the costs both scale with the balance. All figures recomputed.
| Loan amount | Payment at 7% | Payment at 6% | Monthly savings | Closing costs (3%) | Break-even |
|---|---|---|---|---|---|
| $150,000 | $997.95 | $899.33 | $98.63 | $4,500 | 45.6 months |
| $200,000 | $1,330.60 | $1,199.10 | $131.50 | $6,000 | 45.6 months |
| $300,000 | $1,995.91 | $1,798.65 | $197.26 | $9,000 | 45.6 months |
| $400,000 | $2,661.21 | $2,398.20 | $263.01 | $12,000 | 45.6 months |
| $500,000 | $3,326.51 | $2,997.75 | $328.76 | $15,000 | 45.6 months |
The deal-maker is the size of the rate drop, not the balance. On a $300,000 loan, a 0.25% drop saves only $50.11 a month (180-month break-even), a 0.50% drop saves $99.70 (90 months), a 0.75% drop saves $148.76 (61 months), and a full 1% drop saves $197.26 (46 months). Always compare the new payment to your current one and watch for the reset-term trap before refinancing.
Special situations and variations
Refinancing is not always the right lever - sometimes a recast, a shorter term, or extra payments beat it.
- Recast. If you have a low rate and a lump sum, ask your servicer to recast: they re-amortize the existing loan over the remaining term for a few hundred dollars, lowering the payment while keeping your rate. No closing costs, no credit pull.
- Shorter-term refi. Moving from a 30-year to a 15-year usually earns a lower rate and slashes interest, but the payment jumps - confirm the new payment fits your budget before committing.
- Removing PMI. If your home appreciated and you are now under 80% LTV, a refinance can drop mortgage insurance even without a big rate change.
- Streamline refinances. Government-backed loans (FHA, VA, USDA) often allow reduced-documentation refinances with lower fees - shop those if you have such a loan.
One tax note: mortgage interest deductibility and the treatment of cash-out funds vary by how the money is used and your situation, so verify your specifics with a tax professional - this calculator handles the loan math, not the tax treatment. For more on whether your numbers qualify, see the CFPB refinancing guidance.
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For a related deep dive, see CFPB refinancing guidance.
Mortgage Refinance Calculator — frequently asked questions
- What about closing costs?
- Refinancing has closing costs (often 2–5%). Divide them by monthly savings to find your break-even point.
- Does resetting the term cost more?
- Restarting at 30 years can increase total interest even at a lower rate — compare carefully.
- What are typical closing costs?
- Usually 2–5% of the loan amount, paid up front or rolled in.
- What is a no-closing-cost refinance?
- The lender covers costs in exchange for a slightly higher rate — compare both.
- How do I calculate the break-even point on a refinance?
- Divide your total closing costs by your monthly payment savings to get the number of months to recoup the cost. For example, $9,000 in closing costs and $200 a month saved is $9,000 / $200 = 45 months to break even. If you plan to keep the home longer than the break-even point, the refinance pays off. Our <a href="/mortgage-refinance-calculator/">mortgage refinance calculator</a> does this comparison for you against your current payment.
- What is the break-even point on a $300,000 refinance from 7% to 6%?
- About 46 months, or just under 4 years. Dropping a $300,000, 30-year loan from 7% to 6% cuts the payment from $1,995.91 to $1,798.65, a saving of $197.26 a month. With closing costs of 3% ($9,000), break-even is $9,000 / $197.26 = 45.6 months. Stay past that point and you come out ahead; sell or refinance again sooner and you lose money on the deal.
- Is it worth refinancing for a 0.5% rate drop?
- Usually only if your loan is large or you will stay in the home many years. On a $300,000, 30-year loan, going from 7% to 6.5% saves just $99.70 a month, so $9,000 in closing costs takes about 90 months (7.5 years) to recoup. A common rule of thumb is to want at least a 0.75% to 1% drop, but always run the actual break-even math, because the loan size changes the answer.
- Does refinancing into a new 30-year loan cost more in the long run?
- Yes - even at a lower rate, restarting the clock to a fresh 30-year term can raise your total lifetime interest. After 5 years on a $300,000, 7% loan you owe about $282,395 with roughly $316,377 in interest left to pay. Refinance that into a new 30-year at 6% and you pay about $327,121 in interest, roughly $10,744 MORE despite the lower rate, because you stretched 25 years of debt back out to 30.
- How can I refinance to a lower rate without paying more total interest?
- Refinance into a shorter term that matches the years you have left, not a fresh 30-year. Using the example above, a $282,395 balance refinanced into a 25-year loan at 6% costs about $263,447 in interest versus about $316,377 if you kept the old 7% loan, and it still lowers your payment by roughly $176 a month. Matching the remaining term captures the rate savings without resetting the amortization.
- What is the difference between a rate-and-term refinance and a cash-out refinance?
- A rate-and-term refinance only changes your interest rate and/or loan length, while a cash-out refinance increases the balance so you can pocket the difference. For example, keeping a $250,000 balance at 7% is a $1,663.26 payment; a cash-out to $300,000 at 6.5% raises it to $1,896.20 even with a lower rate, because you borrowed $50,000 more. Cash-out usually carries a slightly higher rate than rate-and-term.
- How do I calculate a refinance payment in Excel?
- Use =PMT(rate/12, months, -balance) for the new loan. For a $300,000, 30-year refinance at 6%, type =PMT(0.06/12, 360, -300000), which returns $1,798.65. Compare that to your current payment to see the monthly savings, then divide your closing costs by that savings for break-even months. Add =CUMIPMT to total the interest if you want to check the lifetime-interest trap of resetting the term.
- Is a no-closing-cost refinance worth it?
- It can be if you may move or refinance again within a few years, since you trade upfront fees for a higher rate. On a $300,000 loan, a 6% rate with $9,000 in costs pays $1,798.65, while a no-cost 6.5% pays $1,896.20, about $97.55 more a month. Paying the $9,000 upfront only wins after $9,000 / $97.55 = 92 months (7.7 years). Stay shorter than that and the no-cost option is cheaper overall.
- How much can I save refinancing a $250,000 loan from 6.5% to 5.5%?
- About $161 a month, recouped in roughly 31 months at 2% closing costs. The payment falls from $1,580.17 to $1,419.47, a $160.70 monthly saving. With $5,000 in closing costs (2% of $250,000), break-even is $5,000 / $160.70 = 31.1 months, under 3 years. After that point you keep the full $160.70 each month, which is over $1,900 a year back in your budget.
- What rate drop do I need to make refinancing worth it on a $400,000 loan?
- Aim for roughly a 0.75% to 1% drop so you break even within about 5 years. On a $400,000, 30-year loan a 0.75% drop from 7% to 6.25% saves $198.34 a month, recouping 3% closing costs ($12,000) in 60.5 months. A full 1% drop from 7.25% to 6.25% saves $265.84 a month, breaking even on $16,000 (4%) in about 60 months. Larger loans justify smaller rate drops than small loans do.
- Does the break-even point change if I have a bigger mortgage?
- No - at the same rate drop and the same closing-cost percentage, break-even months stay roughly the same regardless of loan size. A 1-point drop from 7% to 6% with 3% closing costs breaks even at about 45.6 months whether the loan is $150,000 (saving $98.63) or $500,000 (saving $328.76). The dollar savings scale up, but so do the costs, so the timeline is driven by the rate drop, not the balance.
- Is it worth refinancing to save $50 a month?
- Almost never, because tiny savings take far too long to recoup closing costs. A 0.25% drop on a $300,000 loan from 7% to 6.75% saves only $50.11 a month, so $9,000 in closing costs takes about 180 months (15 years) to break even. Unless you can get a true no-closing-cost deal or you are also shortening the term, a $50 saving rarely justifies a refinance. Hold out for a bigger rate gap.
- How do I compare refinancing to just making extra payments on my current loan?
- Compare the break-even cost of refinancing against the guaranteed interest you save by prepaying, which has zero closing costs. Refinancing only helps if the rate drop beats what extra payments achieve and you stay past break-even. If the rate gap is small, putting your would-be closing costs toward principal via our <a href="/extra-payment-mortgage-calculator/">extra payment mortgage calculator</a> can shrink interest and the term without any fees or a new application.
- Should I refinance from a 30-year to a 15-year mortgage?
- Refinance to a 15-year only if you can handle the higher payment, because it slashes lifetime interest even though the monthly cost rises. A 15-year carries a higher payment than stretching back to 30 years, but you pay far less total interest and own the home in half the time. If the payment is too high, a 20- or 25-year term is a middle path. Use our <a href="/mortgage-calculator/">mortgage calculator</a> to size each term before deciding.
- How long do I need to stay in my home to make refinancing worth it?
- Plan to stay longer than your break-even point, which is closing costs divided by monthly savings. If closing costs are $8,000 and you save $200 a month, break-even is 40 months, so staying at least 3.5 to 4 years makes the deal pay. Sell or move before break-even and the closing costs outweigh the savings. The bigger your monthly savings, the shorter the stay you need to justify refinancing.
Guides & articles
- Mortgage Refinance Break-Even Point: How Long Until a Refi Pays Off
- Why a Lower Rate Can Cost More: The Fresh-30-Year Refinance Trap
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