What This Calculator Does
Refinancing your mortgage can lower your monthly payment, reduce your total interest, or help you pay off the loan faster. But refinancing also comes with closing costs, so it only makes financial sense if you stay in the home long enough to recoup those costs through your monthly savings.
This refinance calculator compares your current mortgage against a new loan, showing your monthly savings, the break-even point, and the net interest savings after accounting for closing costs.
Inputs Required
- Current Balance: The remaining amount owed on your existing mortgage
- Current Rate: Your existing interest rate
- Remaining Years: How many years are left on your current loan
- New Interest Rate: The rate offered on the refinanced loan
- New Loan Term: The repayment period for the new loan
- Closing Costs: Fees paid upfront to complete the refinance (typically 2% to 5% of the loan amount)
Outputs Provided
- Monthly Savings: Reduction in monthly payment after refinancing
- Break-Even Point: How long until savings exceed closing costs
- Net Interest Savings: Total interest saved minus closing costs over the new loan life
- Cumulative Cost Chart: Visual comparison of total payments over time for both loans
How the Calculation Works
The calculator uses the standard amortization formula for both the current and new loan to determine monthly payments and total interest paid over each loan's remaining life.
Monthly Savings = Current Payment - New Payment
Break-Even = Closing Costs / Monthly Savings
Net Savings = (Current Total Interest - New Total Interest) - Closing Costs
The break-even point tells you the minimum number of months you need to stay in the home for refinancing to be worthwhile. The cumulative cost chart shows where the two cost lines cross, making the break-even visual and intuitive.
How to Use the Calculator
- Enter your current mortgage balance, rate, and remaining years
- Input the new rate and term you have been offered
- Enter estimated closing costs (ask your lender for a Loan Estimate)
- Review your monthly savings and break-even timeline
- Compare the cumulative cost chart to see when refinancing begins to pay off
Example Calculation
A homeowner has $280,000 remaining at 7.5% with 25 years left, and receives an offer to refinance at 6.0% for 30 years with $5,000 in closing costs:
- Current monthly payment: $2,068
- New monthly payment: $1,679
- Monthly savings: $389
- Break-even: approximately 13 months
- If they plan to stay 10+ years, refinancing makes strong financial sense
Real World Scenarios
Rate Drop Opportunity
Mortgage rates drop significantly after a homeowner purchased their home. They use this calculator to confirm that refinancing from 8% to 6.25% saves $350 per month and the $6,000 in closing costs are recouped in 17 months. Since they plan to stay long-term, refinancing is clearly worth it.
Shortening the Loan Term
A homeowner with 28 years remaining wants to pay off the mortgage in 15 years. Even though the monthly payment increases, the calculator shows massive interest savings over the shortened term. This is a common strategy for those whose income has grown significantly since their original purchase.
Planning to Move Soon
A homeowner considering refinancing plans to sell in 3 years. The calculator shows the break-even is 22 months, meaning they will only capture about 14 months of savings before selling. This may or may not justify the upfront cost, and the calculator makes this trade-off clear.
Why This Calculation Matters
Refinancing at the wrong time or without understanding the costs can actually cost you money. Many homeowners refinance repeatedly without factoring in closing costs, extending their total loan life and paying far more in interest overall.
The break-even analysis is especially critical. If you are likely to sell or move before reaching the break-even point, refinancing loses money even if the new rate is significantly lower.
Common Mistakes to Avoid
- Only looking at monthly savings: Monthly savings are only valuable if you stay long enough to break even on closing costs
- Resetting to a 30-year term every time: Repeatedly refinancing into a new 30-year term can extend debt for decades longer than necessary
- Ignoring total interest paid: A lower rate on a longer term can result in more total interest than keeping the current loan
- Underestimating closing costs: Closing costs of 2% to 5% on a large loan are significant. Get a formal Loan Estimate from your lender before deciding
- Not considering no-closing-cost options: Some lenders offer no-closing-cost refinances in exchange for a slightly higher rate. Compare both approaches