How to use the refinance calculator
- Under Current loan, enter your Remaining balance, Current interest rate and Years left on current loan from your mortgage statement.
- Under New loan, enter the New interest rate and New loan term (years) from the lender's offer. Type your years left instead of 30 to compare like for like.
- Enter Closing costs from the lender's Loan Estimate. Tick Add closing costs to the new loan balance if you will roll them in.
- Read Monthly savings, Break-even and Lifetime savings; the table shows each loan's interest and total cost.
How the refinance math works
Both payments use the standard amortization formula M = P × r / (1 − (1 + r)−n), where P is the loan amount, r is the yearly rate divided by 12 and n is the number of monthly payments. Monthly savings is the current payment minus the new one. Break-even follows the Federal Reserve's refinancing guide: closing costs divided by monthly savings, rounded up to a whole month. Lifetime savings compares every payment left on your current loan with every payment on the new loan plus closing costs paid in cash.
Worked example with the default numbers
You owe $300,000 at 7.75% with 27 years left, so your principal and interest payment is $2,212.29. A new 30-year loan at 6.5% costs $1,896.20 a month, a saving of $316.09. The $6,000 in closing costs divided by $316.09 is 18.98, so you break even in 19 months. From today the current loan costs $716,782 in total and the new one $688,633 including closing costs, so lifetime savings are $28,149.
That is far less than the monthly saving suggests because the new loan adds 3 years of payments. Set New loan term (years) to 27 and the same rate drop saves $245.63 a month, breaks even in 25 months and saves $73,583 in total. To see how each payment splits between interest and principal, use the amortization schedule calculator.
Limits and edge cases
- Payments are principal and interest only; tax and insurance usually stay about the same after a refinance.
- Both loans are treated as fixed rate. An adjustable-rate offer can change after its fixed period.
- A shorter new term can raise the payment yet cut total cost, so break-even shows Never while lifetime savings stay positive.
- Cash-out refinancing is not modelled. If you mainly need cash, try the HELOC calculator; to weigh two lender quotes, use the mortgage comparison calculator.
Refinance FAQ
How do I calculate my refinance break-even point?
Divide your total closing costs by your monthly savings. With $6,000 in costs and $316.09 saved each month, 6,000 / 316.09 = 18.98, so you break even in month 19. Sell or refinance again before then and it costs more than it saves.
Is it worth refinancing for a 1% lower rate?
Often, if you keep the loan past break-even. On $300,000 with 27 years left, going from 7.75% to 6.75% on the same term cuts the payment by $197.49, breaks even on $6,000 of costs in 31 months and saves $57,987 in total.
Does refinancing restart my loan term?
Yes. A refinance is a new loan with a new amortization schedule, so a 30-year loan taken with 27 years left adds 3 years of interest. Matching the term to your years left, or paying extra principal, avoids stretching the loan.
Should I roll closing costs into the new loan?
Rolling them in avoids paying cash at closing, but you pay interest on the costs for years. In the default example it raises the new payment to $1,934.13, pushes break-even to 22 months and cuts lifetime savings from $28,149 to $20,496.
Can I deduct points paid on a refinance?
Usually not all at once. IRS Publication 936 says points paid to refinance are generally deducted over the life of the loan, except the part tied to money used to substantially improve your main home.
Sources: Federal Reserve, A Consumer's Guide to Mortgage Refinancings; IRS Publication 936; Freddie Mac mortgage rate survey (weekly 30-year fixed average; the calculator's rates are examples, so use the rates on your own offers).