Is refinancing worth it?
Refinancing replaces your existing mortgage with a new one, usually to get a lower rate, change the loan term, or switch from an adjustable to a fixed rate. It is not free: closing costs often run a few percent of the loan amount. The key question is whether the savings outweigh those costs within the time you expect to keep the loan. This calculator answers that with two numbers: the break-even point and the lifetime savings.
How to use the calculator
Enter your current loan balance (from your latest statement), current interest rate, and years remaining. Then enter the new rate, new loan term, and estimated closing costs from a lender's Loan Estimate. The calculator compares principal-and-interest payments, shows how many months of savings it takes to recover closing costs, and compares the total remaining interest on each path.
Understanding the break-even point
If you save $200 a month and closing costs are $6,000, you break even after 30 months. If you plan to sell or refinance again before then, the refinance probably costs more than it saves. If you plan to stay much longer, the savings keep accumulating after break-even.
Watch out for resetting the clock
A common trap: refinancing a loan with 25 years left into a new 30-year loan lowers the monthly payment partly because you are stretching payments over five more years. The monthly savings look great, but total interest can actually rise. That is why this calculator shows lifetime interest as well as the monthly change. To compare fairly, try a new term close to your remaining term, or plan to make extra payments on the new loan to finish on the original schedule.
Other reasons to refinance
- Shorten the term (e.g., 30-year to 15-year) to pay off sooner and save interest, at the cost of a higher payment.
- Remove mortgage insurance once you have enough equity, which can produce savings beyond the rate change.
- Switch from an ARM to a fixed rate for payment certainty.
- Cash-out refinancing to tap equity. Be cautious: this increases your debt and puts your home at risk if you cannot pay.
Old rules of thumb
You may hear that refinancing only makes sense if rates drop by 1% or more. A better approach is to run the numbers, since a smaller rate drop can still pay off on a large balance with low closing costs, while a big rate drop may not pay off if you are moving soon.
Limitations
This tool compares principal and interest only. It does not model points, rolled-in closing costs, taxes, insurance, PMI changes, or the tax treatment of mortgage interest. Compare official Loan Estimates from several lenders before deciding.
Formula used
Payments use M = P × r / (1 − (1 + r)−n) for the current balance at the current rate and remaining months, and at the new rate and new term.
Break-even months = closing costs ÷ monthly savings (rounded up). Lifetime savings = remaining interest on current loan − (interest on new loan + closing costs).
Frequently asked questions
What are typical refinance closing costs?
They vary by lender and location; check the Loan Estimate, which itemizes them.
Can I roll closing costs into the loan?
Often yes, but that increases the balance and interest. Add them to the balance to model this.
Why can lifetime savings be negative even with a lower payment?
Because extending the term means more payments, which can increase total interest.
Does refinancing affect my credit?
A hard inquiry and a new account can cause a small, usually temporary dip.
Keep planning
- Mortgage Calculator — build a full amortization schedule.
- Rent vs. Buy Calculator — revisit the rent vs. buy question.
- APR to APY Calculator — understand APR on loan offers.