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Compare your current loan against a new rate in seconds. Our free refinance calculator shows your monthly savings and exactly when lower payments pay back your closing costs.
Enter your remaining balance, current rate and years left, plus the new rate, new term and closing costs. The calculator computes both monthly payments with the standard loan formula, then divides closing costs by monthly savings for the break-even point.
Formula: Payment = P × r(1+r)^n / ((1+r)^n − 1); Break-even (months) = Closing costs ÷ Monthly savings.
Using the refinance calculator above takes less than a minute and can reveal whether a new loan will genuinely save you money. Follow these steps to get an accurate comparison between your current mortgage and any refinance offer you are considering.
Pro tip: Run the numbers for several scenarios before you apply. Compare a 30-year and a 15-year refinance side by side, try your numbers with and without discount points, and test what happens if closing costs come in $1,500 higher than quoted. The break-even month is the single most important output: it tells you exactly how long you must keep the loan for the savings to repay the upfront costs.
Refinancing means replacing your existing mortgage with a brand-new loan, ideally on better terms. The new lender pays off your old loan in full, and you begin making payments on the replacement loan at its new interest rate, over its new loan term, and under its new conditions. Homeowners most often refinance to capture a lower rate, shorten or lengthen the repayment term, switch from an adjustable rate to a fixed rate, or tap home equity as cash.
Every mortgage follows an amortization schedule, the month-by-month table showing how each payment splits between interest and principal (the actual loan balance). In the early years of a loan, most of each payment goes to interest; later, the balance shifts toward principal. When you refinance, you restart this clock, which is why refinancing late in a loan’s life can cost more total interest even when the monthly payment drops.
There are two main families of refinance. A rate-and-term refinance changes your rate, your term, or both, without increasing the loan balance; this is the classic move when market rates fall. A cash-out refinance replaces your mortgage with a larger loan and hands you the difference in cash, which homeowners commonly use for renovations, debt consolidation, or education costs. Lenders also distinguish no-closing-cost refinances, where fees are rolled into a slightly higher rate instead of paid upfront.
Several numbers decide whether a refinance is approved and whether it is worth doing. Your loan-to-value ratio (LTV) is the loan balance divided by the home’s appraised value; most conventional refinances want an LTV at or below 80 percent to avoid private mortgage insurance. Your credit score drives the rate you are offered, your debt-to-income ratio shows whether you can afford the payment, and your home equity (value minus balance owed) determines how much cash you could take out. Closing costs typically run 2 to 5 percent of the loan amount and include origination charges, appraisal fees, title search and insurance, and prepaid taxes and insurance. The break-even point is the month when cumulative monthly savings finally equal those upfront costs; every month you keep the loan after that point is pure savings.
Refinancing is not free money and it is not automatically smart. Because you restart amortization, refinancing a loan you are 20 years into can mean paying interest for decades longer than necessary. And because closing costs are real dollars out of your pocket (or added to your balance), a refinance only pays when you keep the new loan past the break-even month. The calculator above makes that judgment call visible in seconds.
The math behind any refinance comparison starts with the standard monthly mortgage payment formula:
M = P × r(1+r)n ÷ ((1+r)n − 1)
Here M is the monthly payment, P is the loan principal (your remaining balance), r is the monthly interest rate (annual rate divided by 12), and n is the total number of monthly payments. Once you can compute the payment for the old loan and the new loan, the refinance decision reduces to two simple formulas:
Monthly savings = Old monthly payment − New monthly payment
Break-even (months) = Total closing costs ÷ Monthly savings
If the break-even result is smaller than the number of months you plan to keep the loan, refinancing saves you money. Let us work through two complete examples with real numbers.
Take a remaining balance of $300,000 at 7.5 percent annual interest with 25 years (300 payments) left. The monthly rate r is 0.075 ÷ 12 = 0.00625. Plugging into the payment formula gives a current monthly payment of $2,216.97. Now price a new 30-year loan at 6 percent: r = 0.005, n = 360, and the formula gives a new payment of $1,798.65. Monthly savings are $2,216.97 − $1,798.65 = $418.32. With $6,000 in closing costs, the break-even is $6,000 ÷ $418.32 = 14.3 months. Keep the loan at least 15 months and every payment after that banks $418.32 of savings; over five years the gross savings reach $25,099.20 against a $6,000 cost, for a net gain of about $19,099.
Now consider a $250,000 balance at 8 percent with 20 years (240 payments) remaining. The monthly rate is 0.08 ÷ 12 = 0.006667, and the payment formula gives a current payment of $2,091.10. A new 20-year loan at 5.75 percent (r = 0.0047917, n = 240) produces a payment of $1,755.24. Monthly savings are $2,091.10 − $1,755.24 = $335.86. With $5,500 in closing costs, break-even is $5,500 ÷ $335.86 = 16.4 months. Because the term stays at 20 years here, there is no amortization restart penalty: the borrower saves $335.86 every month and also pays less total interest over the identical payoff horizon, making this an especially clean win as long as they keep the home past month 17.
Notice what the two examples teach. Example 1 saves more per month but stretches the term back out to 30 years, so part of the monthly savings comes from repaying more slowly. Example 2 keeps the payoff date fixed, so its savings are pure interest savings. Always compare total interest over the life of each loan, not just the monthly payment, before you sign.
Sarah bought her home four years ago with a $340,000 mortgage at 7.25 percent. She now owes $320,000 with about 27 years left, and her current payment is $2,253.17 per month. Rates have fallen, and her bank offers a 30-year fixed refinance at 5.99 percent with $7,200 in closing costs. Should she do it?
Her new payment on $320,000 at 5.99 percent over 30 years works out to $1,916.57 per month. Her monthly savings are $2,253.17 − $1,916.57 = $336.60, or $4,039.20 per year. The break-even is $7,200 ÷ $336.60 = 21.4 months. Sarah plans to stay at least eight more years, which is far beyond month 22, so the refinance clearly pays.
Let us look at the five-year picture. Over 60 months Sarah saves 60 × $336.60 = $20,196 in payments. Subtract the $7,200 in closing costs and her net five-year gain is $12,996. There is a trade-off to note honestly: by resetting to a fresh 30-year term when she had 27 years left, she adds three years of payments at the tail end. If she instead took the same 5.99 percent rate on a 25-year term, her payment would be about $2,048 per month (saving only $205 monthly) but she would pay the loan off two years earlier than her current schedule and save far more in lifetime interest. Sarah chooses the 30-year option because the $336.60 monthly breathing room matters more to her budget now, and she plans to make one extra payment per year, which will erase the term extension anyway. The lesson: the calculator shows the monthly story, but your own payoff plan writes the ending.
Mike and Dana own a home appraised at $480,000. They owe $280,000 on a 30-year mortgage at 7.0 percent with 24 years remaining, and their current payment is $2,009.73. They need $60,000 for a kitchen renovation and are choosing between a cash-out refinance and keeping their mortgage while opening a home equity line of credit (HELOC).
Their lender offers a cash-out refinance: a new $340,000 loan ($280,000 to pay off the old mortgage plus $60,000 cash) at 6.25 percent for 30 years, with $8,500 in closing costs. The new payment is $2,093.42 per month, which is $83.69 more than their current payment, but they receive $60,000 in cash at closing. Their new LTV is $340,000 ÷ $480,000 = 70.8 percent, comfortably below the 80 percent threshold, so no mortgage insurance is required.
Now compare the alternative. A $60,000 HELOC at 9.5 percent over 15 years would cost about $626.52 per month on top of their existing $2,009.73 mortgage payment, for a combined $2,636.25 per month. The cash-out refinance at $2,093.42 saves them $542.83 per month versus the keep-and-borrow route, while converting variable-rate HELOC debt into a fixed 6.25 percent rate. Over the 15 years the HELOC would have run, that monthly gap totals more than $97,000 in payment savings, dwarfing the $8,500 closing cost.
The honest caveats: the couple resets to 30 years, so they will pay interest longer, and the $60,000 is secured against their home, meaning renovation spending now carries foreclosure risk if they default. They also had the discipline question: cash-out money is easy to spend on nonessentials, which converts home equity into consumer debt. For Mike and Dana, the math wins because the renovation is expected to add roughly $45,000 to the home’s value and the rate on the entire balance drops from 7.0 to 6.25 percent. Cash-out refinancing is powerful when the cash funds value-creating uses and the blended rate falls; it is dangerous when it funds lifestyle spending at the cost of decades of extra interest.
1. Chasing the monthly payment while ignoring total interest. The most common error is refinancing into a new 30-year loan late in your current term and celebrating a lower payment while quietly adding tens of thousands in lifetime interest. A borrower 22 years into a mortgage who refinances the $120,000 balance into a fresh 30-year loan at a lower rate will almost always pay more total interest despite the smaller check each month. Always compare lifetime interest, not just the payment.
2. Refinancing without knowing the break-even. Many homeowners accept a lender’s savings pitch without dividing closing costs by monthly savings. A $9,000 closing cost against $180 of monthly savings needs 50 months to break even; if you might move or refinance again in three years, you lose money. Never sign until you can state your break-even month from memory.
3. Focusing only on the rate and not the APR or fees. A 5.875 percent quote with $11,000 in fees can be worse than a 6.125 percent quote with $4,000 in fees. Compare Loan Estimates line by line, and use the APR (which folds most fees into an effective rate) as your apples-to-apples yardstick when terms are identical.
4. Cashing out equity for depreciating purchases. Turning home equity into a vacation, a car, or credit-card payoff without fixing the underlying spending pattern converts secured, low-rate debt capacity into consumption. If you cash out, direct the money toward uses that build value or cut higher-rate debt, and have a written plan for the funds before closing day.
5. Applying with a bruised credit profile or too little equity. Rate shopping while carrying maxed-out cards or after opening several new accounts can cost you 0.25 to 0.5 percent on your quote, which on a $300,000 loan is $45 to $85 a month for decades. And applying above 80 percent LTV triggers mortgage insurance that can erase your savings. Spend three to six months polishing credit and, if needed, paying the balance below the 80 percent LTV line before you apply.
Refinancing is one piece of your borrowing picture. Use our Loan Calculator to model payments on any new loan from scratch, our Auto Loan Calculator if you are weighing refinancing a vehicle loan next, and our 401(k) Calculator to check that lower mortgage payments are actually flowing into retirement savings. You can also browse the full Financial Calculators collection.
This page provides a refinance calculator that compares a current mortgage (remaining balance, current rate, years left) against a proposed refinance (new rate, new term, closing costs). Core outputs: current monthly payment, new monthly payment, monthly savings, and break-even months (closing costs divided by monthly savings). Key formulas: M = P*r(1+r)^n/((1+r)^n-1); monthly savings = old payment – new payment; break-even = closing costs / monthly savings. Default example: $300,000 at 7.5% with 25 years left refinanced to 6% over 30 years with $6,000 closing costs yields payments of $2,216.97 vs $1,798.65, savings of $418.32/month, break-even 14.3 months. The article covers rate-and-term vs cash-out refinancing, LTV and credit requirements, two fully worked numerical examples, five common mistakes, and related calculators.
When the monthly savings outweigh closing costs well before you sell or pay off — a common rule is a rate drop of 0.75–1%+ and a break-even under 2–3 years. The refinance calculator above computes your exact break-even.
Typical closing costs run 2–5% of the loan. On a $300,000 refinance saving $418/month with $6,000 in costs, you break even in about 14 months — everything after is pure savings.
A 15-year refinance usually has a lower rate and builds equity fast, but the payment may rise. Compare total interest, not just the monthly payment.
The lender covers costs in exchange for a slightly higher rate. Good if you’ll move soon; worse if you’ll stay long-term — compare the break-even both ways.
Expect a small temporary dip from the hard inquiry and new account. The old loan closing and on-time payments on the new loan typically recover it within months.
The 1% rule says refinancing is worth considering when the new interest rate is at least one full percentage point lower than your current rate. For example, dropping from 7.5% to 6% on a $300,000 balance saves about $418 per month and breaks even on $6,000 of closing costs in just 14.3 months. The rule is a shortcut, not a law: with low closing costs or a large balance, even a 0.5% drop can pay off, while high fees can spoil a full 1% improvement. Always confirm with the break-even formula: closing costs divided by monthly savings.
Expect 2% to 5% of the loan amount, so $6,000 to $15,000 on a $300,000 refinance. This covers the lender origination fee (often 0.5% to 1%), a $300 to $600 appraisal, title search and insurance, recording fees, and prepaid interest, taxes, and insurance. Lenders must give you a Loan Estimate within three business days of application, so compare at least three offers. You can also negotiate: ask a lender to match a competitor’s origination fee or to offer lender credits in exchange for a slightly higher rate.
Yes, but it costs more. With less than 20% equity (above 80% loan-to-value), conventional loans add private mortgage insurance, typically 0.5% to 1% of the loan per year — $125 to $250 a month on $300,000 — which can erase your rate savings. FHA streamline and VA IRRRL refinances allow higher loan-to-value ratios with less paperwork. If your equity is close to 20%, a small principal paydown before applying can remove PMI and unlock better rates.
Sources: payment figures calculated with the standard amortization formula above and cross-checked in the calculator; for official mortgage guidance, see the Consumer Financial Protection Bureau at consumerfinance.gov.
Also try our Loan Calculator, Auto Loan Calculator and 401(k) Calculator for more money math, or browse all Financial Calculators.