Refinancing your mortgage replaces your current loan with a new one — usually to get a lower rate, lower monthly payment, or shorter term. The financial question is simple: do your interest savings over the remaining loan life exceed the closing costs you pay upfront?
The calculator is pre-filled with Fixture G from the engine's verified test suite: a $300,000 loan at 6.5% after 24 payments, refinanced to 5.5% with $4,000 in closing costs. This produces $232.19 per month in savings and a break-even at 17.2 months — meaning you recover the closing costs through lower payments in under 18 months.
Understanding the break-even calculation
Your break-even month is closing costs ÷ monthly payment savings. On the pre-filled example: $4,000 ÷ $232.19 = 17.2 months. If you plan to stay in the home or keep the loan for longer than 17–18 months, refinancing puts money in your pocket. If you plan to sell or pay off the loan before that date, the closing costs cost you more than you recover.
Break-even only measures the monthly payment side. The total interest comparison (old remaining interest vs new loan interest) tells a more complete story. On the pre-filled example, the old loan's remaining interest is $344,055 vs the new loan's $305,976 — a $38,079 total savings over the full remaining term, far exceeding the $4,000 in closing costs.
Note that resetting to a new 30-year term extends the time to payoff even if the monthly payment drops. If your goal is to pay off faster, consider refinancing to a shorter term even if the monthly payment is similar.
When refinancing is and is not worth it
Refinancing is compelling when: you can drop your rate by 0.75% or more, you have at least 5 years remaining on the loan, you plan to stay in the home well past the break-even month, and your credit score qualifies for the advertised rate.
Refinancing is less compelling when: closing costs are very high (above 3% of the loan), the rate difference is under 0.5%, you are already in the back half of your mortgage (where most payments go to principal anyway), or you plan to sell within a few years.
The refinance calculator shows both the monthly savings and total interest comparison for any combination — run your own scenario to see exactly which side of the line you are on.
Cash-out refinancing: a different calculation
A cash-out refinance replaces your existing loan with a larger one — you receive the difference in cash. The refinance comparison mode models rate/term refinancing only, not cash-out. For a cash-out refi, set the new principal to your larger loan amount and compare the new payment to your current payment.
Be cautious: a cash-out refi converts home equity (a hard asset) back into debt. The math often looks attractive on a monthly basis but increases your total interest burden substantially. Always compare the total interest cost, not just the monthly payment.
Frequently asked questions
How do I know if refinancing my mortgage is worth it?
Calculate your break-even month: closing costs ÷ monthly payment savings. If you plan to stay in the home past that month, refinancing saves money. The pre-filled example — $4,000 closing costs, $232.19/month savings — breaks even in 17.2 months. Anything beyond that is net savings.
What are typical mortgage refinance closing costs?
Refinance closing costs typically run 2–5% of the loan amount. On a $300,000 loan, that is $6,000–$15,000. Some lenders offer "no-closing-cost" refis where costs are rolled into the rate or loan balance — this eliminates upfront expense but increases your long-term interest cost. Enter any closing cost amount in the calculator to see the break-even for your specific offer.
Does refinancing reset my mortgage term?
Only if you choose a new 30-year term. You can refinance into a shorter term — 15, 20, or 25 years — which keeps more of your equity-building progress. On the pre-filled example (24 payments made, 336 remaining), a 30-year refi adds 24 months to your total payoff timeline even as the monthly payment falls. Use the "new term" field to model different term lengths.
How much does a 1% rate drop save on a $300,000 mortgage?
A 1% rate drop on a $300,000 / 30-year mortgage saves roughly $160–$190 per month depending on the original rate. Over the full loan life, the total interest savings from a 1% drop are approximately $55,000–$70,000. The break-even on $4,000 closing costs at $175/month savings is about 23 months.