Plain Finance

Refinance Calculator

See what refinancing would save you each month, when it actually pays for itself, and whether a lower payment is quietly costing you more over the life of the loan.

Your current loan

The new loan

Matching your remaining years avoids restarting the clock.

No cash at closing, but you borrow more and pay interest on it.

You would save each month

$417

$2,120.34 → $1,703.37

breaking even after 1 year, 5 months

Two ways to measure break-even

The usual number

Costs ÷ monthly saving
1 year, 3 months

Ignores that a longer term pays down principal more slowly.

Counting what you still owe

Cash paid plus balance
1 year, 5 months

The month the refinance is genuinely ahead if you sold or moved.

New loan amount
$300,000.00
Cash at closing
$6,000.00
Interest, current loan
$336,100
Interest, new loan
$313,210

Over the life of the loan

$16,890

Total cost over time

Each line is what the loan has cost you by that month — payments made, plus the balance you would still owe if you sold. Where they cross is the point the refinance is genuinely ahead.

  • Keep current loan
  • Refinance

The break-even number you have been given is probably wrong

Ask any refinance calculator when you break even and it will divide your closing costs by your monthly saving. Six thousand dollars of costs against four hundred a month: fifteen months. Clean, memorable, and incomplete.

The problem is that it treats a dollar of payment as a dollar of cost, when part of every payment is not a cost at all — it is principal, money moving from one pocket to another. If your new loan runs longer than your old one, less of each payment is principal, so a payment that is $400 smaller is not $400 better off. The naive break-even cannot see this, because it never looks at what you still owe.

The calculator above therefore reports two figures. The familiar one, because you came here expecting it. And a second that asks a better question: if I sold the house in month N, which decision would have left me richer? That means counting the cash paid plus the balance still outstanding, on both loans, at every month — which is exactly what the chart plots.

The term trap

Here is the case that costs people the most money, and it does not look like a mistake while you are making it.

You are ten years into a 30-year mortgage. Rates have come down a little. Your lender offers 6.25% against the 6.5% you are paying, on a new 30-year term, for $6,000 in costs. Your payment drops by about $325 a month. The break-even, calculated the usual way, is nineteen months. Every signal says yes.

Over the life of the loan, that refinance costs you roughly $113,000 more than doing nothing.

The rate improvement is real but small, and it is nowhere near enough to pay for the ten extra years you just added. You had twenty years left; you now have thirty. The monthly saving is not a saving at all — it is the same debt, stretched.

The fix costs nothing: match the new term to the years you have left. On the example loaded in the calculator above — $300,000 at 7% with 25 years remaining, refinanced at 5.5% —

  • Into a new 30-year term: saves $417 a month, and about $17,000 over the life of the loan.
  • Into a 25-year term: saves $278 a month, and about $77,000 over the life of the loan.

Same rate, same closing costs, more than four times the benefit. Note also that the naive break-even ranks these backwards: it favours the 30-year option, at 15 months against 22. Optimising for the number most calculators show you leads you to the worse decision.

When refinancing is clearly worth it

  • The rate drop is meaningful and you keep the term. This is the straightforward win, and it is the case the old one-percent rule was groping toward.
  • You are staying put well past the true break-even. If the honest measure says four years and you intend to be there for fifteen, the decision is easy.
  • You can shorten the term at a similar payment. Moving from 30 years to 15 at a lower rate sometimes costs little more per month and saves enormously.
  • You are dropping mortgage insurance. If your equity has passed 20%, refinancing out of an FHA loan that carries permanent MIP can be worth it on the insurance alone.

When it usually is not

  • You might move before the true break-even. Closing costs are paid up front and recovered slowly; leaving early means you simply paid them.
  • The only gain is a lower payment via a longer term. That is not a saving, it is a deferral — and the calculator will say so.
  • You are near the end of the loan. By then most of your payment is already principal, so there is little interest left for a better rate to save.
  • You would roll costs in and move soon. The worst combination: you finance the fees and then leave before they are recovered.

What this calculator does not model

A fixed rate on both loans, no cash-out, and no change to property tax or insurance — those continue regardless and are not affected by refinancing. It does not model adjustable rates after their initial period, points paid to buy the rate down, or the tax treatment of mortgage interest, which varies by circumstance and can shift the comparison. For the payment itself including escrow, use the mortgage calculator; to see what overpaying your existing loan would achieve instead, try the mortgage payoff calculator — it is often the better move when a refinance is marginal.

Frequently asked questions

What is the break-even point on a refinance?

The month at which the refinance has paid for itself. Almost every calculator works it out as closing costs divided by the monthly saving — $6,000 of costs against $400 a month is a 15-month break-even. That is a useful number but an optimistic one, because it silently assumes the two loans are otherwise identical. If the new loan runs longer, you are also paying principal down more slowly, and the naive figure does not see that at all. This calculator shows both: the usual number, and one that counts the balance you would still owe.

Why does my payment go down but my total cost go up?

Because you restarted the clock. Refinancing eight years into a 30-year loan back into a fresh 30-year means paying for 38 years in total. The lower rate saves you money per dollar borrowed, but you are now borrowing for eight more years, and that usually wins. On a $250,000 balance with 20 years left, moving from 6.5% to 6.25% over a new 30-year term drops the payment by about $325 a month — and costs roughly $113,000 more over the life of the loan. The calculator above flags this whenever it happens.

How do I avoid restarting the clock?

Match the new term to the years you have left rather than taking the default 30. If you have 25 years remaining, refinance into 25 years. You give up some of the monthly saving and keep almost all of the interest saving. In the example on this page, refinancing $300,000 at 7% with 25 years left into a new 30-year at 5.5% saves about $417 a month but only around $17,000 over the loan. Keeping the 25-year term saves less monthly — about $278 — but roughly $77,000 in total. Same rate, same costs, four times the benefit.

Should I roll the closing costs into the loan?

It avoids finding cash at closing, which is a genuine advantage if the cash is the obstacle. The cost is that you borrow the fees and then pay interest on them for the whole term, so a $6,000 fee financed at 5.5% over 30 years costs considerably more than $6,000. Toggle the option above to see the difference on your own numbers. If you have the cash and no better use for it, paying at closing is cheaper.

How much does a refinance cost?

Typically 2% to 5% of the loan amount, covering lender origination fees, appraisal, title insurance, recording and prepaid items. On a $300,000 loan that is roughly $6,000 to $15,000. Some lenders advertise a "no-cost" refinance, which generally means the fees are paid through a higher interest rate instead — worth modelling as a rate difference rather than treating as free. Get a Loan Estimate, which lenders must provide in a standard format, and compare the actual figures.

How far does the rate need to fall to be worth it?

The old rule of thumb was one percentage point, but it was always a poor guide because it ignores your balance, your remaining term, and how long you plan to stay. A quarter-point drop on a large balance you will hold for fifteen years can be worth far more than a full point on a small balance you will sell in three. Run your actual numbers above and look at the true break-even against how long you realistically expect to keep the house.

Does refinancing hurt my credit score?

Slightly and temporarily. The application creates a hard inquiry, and the new account lowers your average account age, both of which typically cost a few points for a few months. Rate shopping within a short window is generally treated as a single inquiry by the major scoring models, so comparing several lenders does not multiply the effect. For most borrowers this is a minor consideration next to the interest at stake.