How the refinance calculator works
Refinancing replaces your existing mortgage with a new one — usually to grab a lower interest rate, change the term, or both. To know whether it's worth it, you compare two amortizing loans. The monthly principal-and-interest payment for each is found with the standard loan formula:
M = P · r / (1 − (1 + r)−n)
- M — monthly principal & interest
- P — loan balance being refinanced
- r — monthly interest rate (annual rate ÷ 12)
- n — number of monthly payments (years × 12)
The calculator runs this for both your current loan (using the years you have left) and the proposed new loan, then compares them.
The break-even point is the key number
A lower payment feels like a win, but refinancing isn't free. The break-even point tells you how many months it takes for your monthly savings to pay back the closing costs:
Break-even months = Closing costs ÷ Monthly savings
If you'll sell or move before you reach break-even, the refinance loses money. If you'll stay well past it, every month afterward is pure savings.
Watch the lifetime interest, not just the payment
Resetting a loan you've been paying for years back to a fresh 30-year term can lower the monthly payment while increasing the total interest you pay — because you're stretching the balance over more years. This calculator shows the lifetime interest change so you can tell a genuine saving from a payment that's merely smaller for longer.
A quick example
You owe $280,000 with 26 years left at 7.25%, and you're offered 5.75% on a new 30-year loan with $4,500 in closing costs. The payment drops by roughly $370 a month, so you break even in about 12 months — and from there the refinance is working in your favor.
Frequently asked questions
How does a refinance break-even point work?
The break-even point is how long it takes for your monthly savings to recover the closing costs of the refinance. Divide your total closing costs by your monthly payment savings: if a refinance costs $4,000 and saves $200 a month, you break even in 20 months. If you plan to keep the home past that point, the refinance starts paying off.
Does refinancing always save money?
No. A lower rate reduces your monthly payment, but stretching the balance back out over a fresh 30-year term can increase the total interest you pay even at a lower rate. This calculator shows both the monthly savings and the lifetime interest difference so you can see the full picture, not just the lower payment.
What costs are involved in refinancing?
Closing costs typically run 2%–6% of the loan amount and can include an application fee, origination fee, appraisal, title insurance, and recording fees. Enter your estimated total in the closing-costs field — it drives the break-even calculation.
Should I refinance to a shorter term?
Refinancing from a 30-year to a 15-year loan usually raises the monthly payment but slashes total interest, because you borrow for half as long and often at a lower rate. If your budget can absorb the higher payment, a shorter term is one of the most effective ways to save on interest.
What is the difference between rate and APR?
The interest rate is the cost of borrowing the principal. The APR rolls in certain fees, so it reflects the true yearly cost of the loan and is better for comparing offers. This calculator uses the interest rate for the payment math and asks for closing costs separately so the break-even is accurate.
Disclaimer: This calculator provides estimates for educational purposes only and is not a loan offer or financial advice. Actual rates, closing costs, and terms vary by lender and your individual situation.