What the refinance calculator compares
Refinancing replaces your mortgage with a new loan, usually at a lower rate. The calculator runs two schedules side by side: the rest of your current loan as it stands, and the new loan with its own rate, term and costs. From these it shows the change in the monthly payment, the interest you pay on each, when the closing costs are earned back and what you gain or lose over the whole time.
The mortgage calculator shows the full monthly payment with property tax, insurance and PMI. Those costs stay about the same when you refinance, so this calculator compares principal and interest only.
Example: 7.25% down to 6.25%
Say you owe $280,000 at 7.25% with 27 years left, and a lender offers 6.25% with $5,000 in closing costs. Your payment today is $1,972 a month.
| New term | Payment | Change per month | Break-even | Lifetime savings |
|---|---|---|---|---|
| 15 years | $2,401 | +$429 | 20 months | $201,704 |
| 20 years | $2,047 | +$75 | 21 months | $142,661 |
| 30 years | $1,724 | −$248 | 22 months | $13,202 |
The 30-year loan has the lowest payment but the smallest lifetime gain, because it adds three years of payments. The 15-year loan raises the payment and saves the most, since the balance falls much faster. Dividing the closing costs by the 30-year savings suggests a break-even after 21 months; counting the slower payoff of the longer loan, it takes 22.
Closing costs, points and cash out
- Closing costs typically run 2 to 5 percent of the loan: appraisal, title insurance, origination and recording fees. Ask lenders for a Loan Estimate to compare them line by line.
- Points cost 1 percent of the new loan each and lower the rate. Enter the rate you get with the points to see whether they pay off before you expect to move.
- Cash out raises the new loan by the amount you take. The lifetime figure counts the cash you receive, so it shows what the extra borrowing costs you in interest.
If your budget is the reason to refinance, the budget planner shows where a lower payment fits into your monthly plan.
Comparing two offers
- 1Take the balance and the years left from your latest mortgage statement, not the original loan amount.
- 2Enter the first offer, then copy the link before you try the second, so you can reopen both.
- 3Pick the offer whose break-even comes well before you plan to sell, and check the term table for a shorter loan you can afford.
Frequently asked questions
When does refinancing make sense?
When you plan to keep the home and the loan longer than the break-even point, and the new loan lowers your total cost, not only your payment. A rate at least half to one percentage point lower is a common rule of thumb, but closing costs and the new term decide whether it really pays off.
How is the break-even point calculated?
Each month the calculator adds up what you saved in payments and how much lower (or higher) your loan balance is than it would have been, and subtracts the closing costs you paid. The break-even month is when that total turns positive and stays positive. It is more honest than closing costs divided by monthly savings, which looks better than it is when the new loan has a longer term.
Should I pay closing costs upfront or roll them into the loan?
Rolling them in keeps cash in your pocket but adds them to the balance, so you pay interest on them for the whole term. Paying upfront is cheaper over the life of the loan if you have the cash. Try both with the checkbox and compare the lifetime result.
What are discount points?
Points are prepaid interest: each point costs 1% of the new loan amount and buys a lower rate, often around 0.25 percentage points per point. They pay off only if you keep the loan long enough, so check the break-even with and without them.
Why does a lower payment still cost more in total?
Starting a new 30-year loan on a mortgage that has 25 years left spreads the balance over five more years. The payment drops, but you make more payments, and the extra interest can outweigh the lower rate. A shorter new term usually saves the most.