Refinance Calculator
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- Formula shown
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Results
Refinancing to 6% saves $261.61 a month; the $6,000 of closing costs pay back in 23 months.
- Keep the current loan
- $570,397
- Refinance (incl. costs)
- $545,595
Break-even here is closing costs ÷ monthly saving. Stay in the home past that point for the refinance to pay for itself. Taxes and insurance are left out because they do not change.
How to use the refinance calculator
- Enter the balance on your current loan, its interest rate and how long you have left to pay.
- Enter the new rate and term from a lender's quote, plus the total closing costs on the Loan Estimate.
- Choose whether you will pay the costs in cash or add them to the new loan.
- Check the break-even point against how long you expect to keep the home, and the lifetime figures against the monthly saving.
Refinance formulas
Break-even months = closing costs ÷ (current payment − new payment)
Net saving = remaining current payments − (new payments + closing costs paid in cash)
Both payments use the standard amortization formula, with P the balance (plus closing costs if you roll them in), r the annual rate ÷ 12 and n the months on that loan. The break-even is the simple payback period most lenders quote. The lifetime comparison adds up every payment left on each path, which is where a longer new term can quietly cost you more.
Worked example
You owe $250,000 at 7.25% with 27 years left, so your principal-and-interest payment is $1,760.48. A new 30-year loan at 6% with $6,000 of closing costs paid in cash has a payment of $1,498.88. That saves $261.61 a month, so the costs are recovered in 22.9 months, about two years. Interest over the life falls from $320,397 to $289,595, and the net saving after costs is $24,802. That is despite adding three years of payments.
Rolling the $6,000 into the loan instead makes the payment $1,534.85, pushing break-even to 26.6 months. A 20-year loan at the same 6% costs $30.59 a month more than you pay now, but saves $134,539 overall.
Break-even months by rate and closing costs
$300,000 at 7% with 30 years left, refinanced into a new 30-year loan.
| New rate | Monthly saving | $4,000 costs | $8,000 costs | $12,000 costs |
|---|---|---|---|---|
| 6.5% | $99.70 | 40.1 months | 80.2 months | 120.4 months |
| 6.25% | $148.76 | 26.9 months | 53.8 months | 80.7 months |
| 6% | $197.26 | 20.3 months | 40.6 months | 60.8 months |
| 5.5% | $292.54 | 13.7 months | 27.3 months | 41 months |
| 5% | $385.44 | 10.4 months | 20.8 months | 31.1 months |
When refinancing makes sense
- You'll stay past break-even. If you might sell or refinance again within a couple of years, a small rate drop may never pay back its costs. Compare the break-even with your plans, not with the loan term.
- Watch the reset of the term. Restarting at 30 years lowers the payment partly by spreading the debt over more years. To keep the original payoff date, choose a shorter term or keep paying your old amount.
- Points are a trade. Paying discount points raises closing costs to lower the rate. Run the calculator with and without points: they pay off only if you keep the loan long enough.
- Compare the APR and the Loan Estimate. Lenders must give you a standard Loan Estimate, which makes fees comparable line by line.
- Cash-out is a different decision. Taking equity out raises the balance. A home equity loan or HELOC can borrow against the house without touching a low first-mortgage rate.
To see the full schedule for the new loan, use the amortization calculator. To compare refinancing with simply paying extra on the loan you have, try the mortgage payoff calculator.
Frequently asked questions
How do I calculate the break-even point on a refinance?
Divide the closing costs by the monthly saving. Refinancing $250,000 from 7.25% with 27 years left into a 30-year loan at 6% saves $261.61 a month, so $6,000 of costs take about 22.9 months, just under two years, to recover.
Is it worth refinancing for a 1% lower rate?
Often, if you stay long enough. On a $300,000, 30-year loan, going from 7% to 6% saves $197.26 a month, recovering $4,000 of closing costs in about 20 months and $8,000 in about 41 months. A smaller drop, or a plan to move soon, can make it a loss.
Does refinancing to a new 30-year loan cost more in the long run?
It can, because you restart the clock. Whether it does depends on the rate drop: in the 7.25% to 6% example the lifetime saving is still about $24,800 after costs. With a smaller drop, the extra years of interest can outweigh the lower rate.
Should I pay closing costs in cash or roll them into the loan?
Paying cash gives the lowest payment and break-even. Rolling them in avoids the upfront cash but you pay interest on them: in the example the saving falls from $261.61 to $225.64 a month and break-even stretches from about 23 to 27 months.
What closing costs should I include?
Use the total on the Loan Estimate: origination and underwriting fees, discount points, appraisal, title insurance and settlement fees, recording fees and any prepaid items you would not otherwise pay. Escrow deposits that replace your old escrow account are usually a wash.