How this refinance calculator works
Refinancing means taking out a new loan to pay off the one you have. You do it to get a lower rate, a lower payment, a shorter term, or cash from your home’s equity. It always costs money up front, so the real question is simple: do the savings beat the costs before you sell or refinance again?
The calculator compares two paths from today:
- Keep your current loan. It works out how many payments you have left from your balance, rate and payment, then builds that schedule.
- Refinance. It builds the new loan from your balance, plus any cash out, plus any costs you choose to add to the loan.
It then shows the change in your monthly payment, two break-even measures, the interest saved, and the lifetime savings after costs.
The formulas
The new payment uses the standard amortization formula:
L = new loan amount · r = new yearly rate ÷ 12 · n = months in the new term
The break-even rule of thumb that most lenders quote:
That shortcut ignores two things: costs added to the loan, and the fact that a new loan restarts the clock. So the calculator also gives a true break-even, the first month from which the refinance stays ahead:
It starts at minus your costs and, for a good refinance, climbs above zero and stays there. Lifetime savings are the net benefit once both loans are paid off: total payments on the current loan minus total payments on the new loan, minus costs paid at closing.
Worked example 1: a lower rate, same 30-year term
Three years ago you borrowed $300,000 at 7.5% for 30 years. Your principal and interest payment is $2,097.64 and you still owe about $291,000, so 324 payments (27 years) are left. A lender offers 6.25% for 30 years with $5,000 of closing costs, paid at closing.
- New payment: 291,000 × 0.0052083 ÷ (1 − 1.0052083^−360) = $1,791.74
- Monthly saving: $2,097.64 − $1,791.74 = $305.90
- Break-even: $5,000 ÷ $305.90 = 16.3 months, so month 17. The true break-even is also month 17.
- Interest from now on: $388,317.25 on the current loan vs $354,025.34 on the new one, a saving of $34,291.91
- Lifetime savings after costs: $29,291.91
Notice the catch: the new loan runs 360 months, 3 years longer than the 324 you had left. You still come out ahead because the rate drop is large, but part of the benefit is eaten by those extra 36 payments. If you keep paying $2,097.64 on the new loan, you would clear it years early and save far more. The mortgage payoff calculator shows exactly how much.
Worked example 2: refinancing to a 15-year loan
Same loan, but you take a 15-year term at 5.75% (shorter loans usually have lower rates).
- New payment: $2,416.49, which is $318.85 more each month
- Interest from now on: $143,968.80 instead of $388,317.25
- Lifetime savings after the $5,000 of costs: $239,348.45
- Simple break-even: never, because the payment rises. True break-even: month 12, because your balance now falls so much faster that the extra equity covers the costs within a year.
This is why the rule of thumb can mislead. A refinance that raises your payment can still be the best deal by far, if your budget can carry it.
Worked example 3: points, rolled-in costs and cash out
Here is the same starting loan under other choices, all with a 30-year new term:
| Option | New loan | Payment | Monthly saving | Simple break-even | Lifetime savings |
|---|---|---|---|---|---|
| 6.25%, $5,000 paid at closing | $291,000 | $1,791.74 | $305.90 | 16.3 months | $29,291.91 |
| Same, costs rolled into the loan | $296,000 | $1,822.52 | $275.12 | 18.2 months | $23,209.00 |
| 6.00% with 1 point ($2,910) + $5,000 | $291,000 | $1,744.69 | $352.95 | 22.4 months | $43,318.12 |
| 6.50%, $6,000 costs, $40,000 cash out | $331,000 | $2,092.15 | $5.49 | 91 years | −$39,855.01 |
What the table shows:
- Rolling costs in saves you $5,000 today but costs about $6,000 more over the life of the loan, because you pay interest on the fees. The break-even also moves back two months.
- The point costs $2,910 and lowers the payment by another $47.05 a month. On its own it breaks even after about 62 months (just over 5 years). If you might move or refinance before then, skip the point.
- Cash out keeps the payment flat only by restarting the term on a bigger loan. Even after counting the $40,000 you receive, you pay $39,855.01 more over the life of the loan than if you kept your current one. It can still make sense to replace expensive debt, but compare it with a home equity loan or a HELOC, which leave your first mortgage rate alone.
When refinancing usually makes sense
| Situation | Usually worth it? | Why |
|---|---|---|
| Rate drops by about 0.75–1 point or more and you will stay several years | Often yes | Savings pass the costs within 1–3 years |
| You will move within 2 years | Usually no | You may sell before the break-even month |
| Switching an adjustable rate to a fixed rate | Often yes | You trade a small cost for payment certainty |
| Dropping FHA mortgage insurance by moving to a conventional loan | Often yes | Removing MIP can save as much as a rate cut |
| Late in the loan (most payments already made) | Often no | Little interest is left to save |
| Cash out to fund spending | Be careful | You pay interest on the cash for decades |
These are rules of thumb. Your own break-even month and lifetime savings above are what count.
Tips before you refinance
- Compare Loan Estimates, not ads. Every lender must give you a standard three-page Loan Estimate within three business days of your application. Get two or three on the same day so the rates are comparable.
- Look at the APR too. The rate sets your payment, but the APR folds in points and fees. Our APR calculator does that conversion for any loan.
- Leave out taxes and insurance. Enter only principal and interest as your current payment. Escrow for property tax and insurance does not change when you refinance.
- Check for a prepayment penalty on your current loan. It is a cost of refinancing too; add it to the closing costs.
- Ask about no-closing-cost offers. They usually swap the fees for a higher rate or roll them into the balance. Run both versions here.
- Keep the old payment if you can. Paying the new loan at your old payment level turns a lower rate into a much faster payoff.
Common mistakes
- Counting only the monthly saving. A lower payment over a longer term can cost more in total. Always check lifetime savings.
- Forgetting the term reset. Five years into a 30-year mortgage, a new 30-year loan means 35 years of payments in total.
- Including escrow in the payment. It inflates the saving, because taxes and insurance stay the same.
- Ignoring how long you will stay. If you sell before the break-even month, the refinance lost money.
- Treating cash out as savings. Cash out is borrowed money. The calculator counts it as cash you receive, but it adds interest for the life of the loan.
About the numbers
All results are calculated in your browser using the standard amortization formula with monthly compounding, the method US lenders use for fixed-rate mortgages. Payments are not rounded to the cent until display, and the calculator ignores taxes, the mortgage interest deduction and the time value of money. Rates and fees vary by lender and credit profile, so treat this as a comparison tool and rely on your Loan Estimate and Closing Disclosure for the exact figures.