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.
Worked examples
Classic rate-and-term refinance — strong candidate
$300,000 original loan at 7%, 24 payments made, refinancing to 5.5% / 30 years, $4,000 closing costs.
Old payment
$1995.91
New payment
$1667.51
Monthly saving
$328.40
Breakeven
13 months
Old payment: $1,995.91. Remaining balance after 24 payments: approximately $291,500. New payment at 5.5% / 30yr: approximately $1,654 — saving roughly $342/month. Breakeven: $4,000 ÷ $342 ≈ 12 months. A borrower who plans to hold for more than 1 year recovers the closing costs and then saves $342/month for the remaining loan life — a strong candidate for refinancing.
Large loan — refinance into shorter term
$400,000 at 7.5%, 36 payments made, refinancing to 6.25% / 25 years, $5,000 closing costs.
Old payment
$2796.86
New payment
$2559.89
Monthly saving
$236.96
Breakeven
22 months
Refinancing to a 25-year term reduces the total remaining loan life (the original 30yr now has 27yr left; the new 25yr saves 2 years in addition to the rate savings). New payment is slightly higher than a 30yr refinance would be, but total interest drops substantially. Breakeven is slightly longer because the monthly saving is smaller — important to verify the hold period justifies it.
Marginal case — small rate drop, late-stage loan
$250,000 at 6.5%, 60 payments made, refinancing to 5.75% / 30 years, $3,500 closing costs.
Old payment
$1580.17
New payment
$1365.72
Monthly saving
$214.45
Breakeven
17 months
Refinancing 5 years in resets the clock to 30 years on the remaining balance. The monthly saving is real but the breakeven must be evaluated against how long the borrower will hold — and against the fact that extending to a new 30-year term means more total interest than staying on the remaining 25-year path, even at a lower rate. This example illustrates the "reset trap": always compare paths with identical end-dates, not just monthly savings.
What affects your loan outcome
Rate reduction size
A 1% rate drop on a $300,000 mortgage saves roughly $180–$200/month. A 0.25% drop saves about $45–$50/month — meaning closing costs of $3,000 would take over 5 years to break even. The general threshold used by most mortgage advisors is that a refinance is clearly worth evaluating when the rate drop is at least 0.75–1%, though the math should always be run explicitly.
Breakeven horizon vs. planned hold period
Breakeven month = closing costs ÷ monthly payment reduction. If you plan to sell or move before that month, the refinance costs more than it saves. If you plan to stay indefinitely, even a long breakeven (36–48 months) can be worth it. The highest-risk scenario is refinancing within 3–5 years of a planned sale — the costs are almost never recovered in time.
Remaining loan term and amortization reset
Refinancing 20 years into a 30-year mortgage into a new 30-year loan resets 10 years of equity-building momentum. The new loan's amortization schedule starts from scratch with interest-heavy early payments. Unless the rate drop is substantial or cash flow is critical, a 15- or 20-year refinance term may be better than a new 30-year, even though the monthly payment is higher.
Closing costs as a percentage of loan
Closing costs on a refinance typically run 2–5% of the loan balance, covering lender fees, title, appraisal, and third-party charges. On a $400,000 refinance, $8,000–$20,000 in closing costs is common. Rolling closing costs into the new loan (cash-out refinance of closing costs) is possible but increases the balance and offsets some interest savings — the breakeven calculation must account for the interest on rolled-in costs.
More loan questions
How do I know if refinancing my mortgage is worth it?
The core question is: does the total interest saving (over your planned hold period) exceed the closing costs? The breakeven calculation answers this directly: closing costs ÷ monthly payment reduction = breakeven month. If you plan to hold the loan past that month, refinancing is financially positive. This calculator computes the breakeven and shows both the old and new payment paths so you can evaluate at any planned hold duration.
What is a cash-out refinance and should I use it?
A cash-out refinance replaces your existing mortgage with a larger one, with the difference paid to you in cash. It is a way to access home equity for renovations, debt consolidation, or other large expenses. The tradeoff: a larger mortgage balance, potentially a higher rate (cash-out rates are typically 0.125–0.375% above rate-and-term refinance rates), and starting the amortization schedule over. This calculator models rate-and-term refinance (no change in balance beyond the remaining principal). For cash-out analysis, use the new loan amount as your input principal.
When should I not refinance?
Avoid refinancing if: you plan to sell within the breakeven period; you are already far into the loan term and a new 30-year would add net interest cost; your credit score has dropped significantly since origination (may result in a rate above your current loan rate); or the closing costs are so high they push the breakeven past your reasonable hold period. Also reconsider refinancing if your current loan has a prepayment penalty that would make the total cost prohibitive.
What this calculator computes — and what it does not
This calculator models fixed-rate, fully amortizing loans using the standard amortization formula. A number of real-world factors are outside its scope.
- 1.Results are estimates, not guarantees. Actual loan costs depend on the exact terms in your loan agreement, any fees charged at origination, how the lender applies payments, and whether you make every payment exactly on schedule. This calculator assumes all payments are made on time with no changes.
- 2.Interest rates are user-supplied, not live market data. This tool does not connect to any rate feed. The rate you enter should come from a lender quote or your loan agreement. Current rates vary by lender, credit score, loan type, and market conditions — this calculator cannot provide those figures.
- 3.Property taxes, insurance, and PMI are excluded unless toggled on. The payment computed here is principal and interest only. For a mortgage, your total monthly obligation includes property taxes, homeowners insurance, and PMI (if your down payment is under 20%) — collected in escrow by most lenders. These can add $200–$800 or more per month to the P&I payment shown.
- 4.APR vs. interest rate. This calculator uses the stated interest rate for payment math. APR (Annual Percentage Rate) is always higher than the interest rate because it spreads lender fees over the loan term. APR is the correct metric for comparing loan costs across lenders; the stated rate is the correct input for computing the payment schedule.
- 5.Variable-rate loans cannot be accurately projected. This calculator models fixed-rate amortization only. For adjustable-rate mortgages (ARMs), tracker mortgages, or variable-rate personal loans, the payment changes when the rate resets — the full-term projection would require assumptions about future rates that cannot be known in advance.
This calculator is for educational and planning purposes only. It does not constitute financial, mortgage, or legal advice.