Refinance Calculator
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Result
Break-even point
- Monthly saving
- $273
- New monthly payment
- $1,724
- Current monthly payment
- $1,997
- Lifetime interest difference
- -$3,329
- New loan amount
- $280,000
- Interest left on current loan
- $342,914
- Interest on the new loan
- $340,643
- You recover the $5,600 of closing costs after 21 months — about 1.7 years. If you might move or refinance again before then, the refinance loses money.
- This is the trap in most refinance decisions: the payment falls by $273 a month, but extending from 26 years back to 30 adds $3,329 in total interest. You are paying less each month and more overall.
The same rate across different new terms
Lower payments on a longer term usually cost more overall. This is the comparison worth making.
| New term | Monthly payment | Total interest | vs staying put |
|---|---|---|---|
| 15 years | $2,401 | $152,141 | saves $185,173 |
| 20 years | $2,047 | $211,184 | saves $126,131 |
| 30 years | $1,724 | $340,643 | costs $3,329 |
How do you calculate the break-even point on a refinance?
To find the break-even point on a refinance, divide the closing costs by the monthly saving. Closing costs of $5,600 against a saving of $194 a month breaks even after 29 months. If you sell or refinance again before that, the refinance loses money.
break-even months = closing costs ÷ (current payment − new payment)- closing costs
- Lender fees, appraisal, title and escrow — typically 2–5% of the loan
- current payment
- Principal and interest on the existing loan
- new payment
- Principal and interest on the proposed loan
The monthly saving is what lenders advertise and the break-even month is what actually decides the question, because closing costs are paid up front and recovered slowly. A $5,600 cost against a $194 monthly saving takes 29 months to recover, so the refinance only pays if you keep the loan beyond that. There is a second trap that the monthly saving hides entirely. Refinancing a 26-year remainder into a fresh 30-year term lowers the payment partly because the rate fell and partly because the debt is stretched over four more years — and the second part costs money. It is entirely possible to cut the monthly payment and increase total interest at the same time, which is why this calculator shows the lifetime difference alongside the monthly one and compares all three new terms. A rate drop of less than about 0.75% rarely clears closing costs on a term-for-term refinance.
- Find your current balance and the years remaining on the loan.
- Calculate the payment on the existing rate and remaining term.
- Calculate the payment on the new rate and new term.
- Subtract the new payment from the current one for the monthly saving.
- Divide closing costs by that saving for the break-even month.
- Compare total interest both ways, not just the monthly payment.
Worked example: A $280,000 balance at 7.25% with 26 years left, refinanced to 6.25% over 30 years, $5,600 closing costs
A $280,000 balance at 7.25% with 26 years left, refinanced to 6.25% over 30 years, $5,600 closing costs
The current payment on $280,000 at 7.25% over 26 years is $1,997. The new loan at 6.25% over 30 years is $1,724, so the payment falls by $273 a month. Dividing the $5,600 of closing costs by that saving gives a break-even of 21 months — comfortably inside the time most people keep a mortgage, so on the monthly measure this looks worth it. The lifetime picture reverses it. Staying put costs $342,900 in remaining interest; the new loan costs $340,600 plus $5,600 in fees, so refinancing actually costs about $3,300 more overall. The one-point rate drop is real, but stretching a 26-year remainder back out to 30 years consumes more than all of it. Taking the new loan over 20 years instead raises the payment to $2,047 — barely above the current one — while cutting total interest to $211,200 and saving roughly $126,100. That is the comparison the monthly figure hides.
What each refinance input means
- Current loan balance
- What you still owe today, from your latest mortgage statement — not the original loan amount.
- Current interest rate
- The rate on your existing mortgage.
- Years remaining
- How long is left on the current loan. This is the figure people get wrong — refinancing a 26-year remainder into a fresh 30 resets the clock.
- New interest rate
- The rate you have been quoted on the new loan.
- New loan term
- The new term. Choosing 30 years when you had 26 left lowers the payment but can raise total interest even at a lower rate.
- Closing costs
- Lender fees, appraisal, title and escrow. Typically 2–5% of the loan. This is what the break-even month is measured against.
- Cash out
- Extra borrowed on top of the balance. A cash-out refinance raises the new loan and usually carries a slightly higher rate.
What this refinance does not account for
- This compares principal and interest only. Property tax and insurance do not change when you refinance, so leaving them out makes the comparison cleaner rather than incomplete.
- The break-even assumes you keep the new loan. Selling, moving or refinancing again before the break-even month means the closing costs were never recovered.
- A no-closing-cost refinance is not free — the fees are built into a higher rate or added to the balance. Enter the real rate and the real loan amount.
- Resetting the term is the hidden cost. Refinancing a 26-year remainder into a fresh 30 lowers the payment while adding four years of interest.
- Cash-out refinances usually carry a higher rate than rate-and-term, and converting equity into debt secured on the house has consequences this calculation does not weigh.
- Discount points are not modelled separately. If you are buying the rate down, include the point cost in closing costs and use the bought-down rate.
- Removing PMI by refinancing above 20% equity is a real saving not captured here, and can justify a refinance the payment comparison alone would reject.
Frequently asked questions
How do I know if refinancing is worth it?
Divide closing costs by the monthly saving to get the break-even month, then ask whether you will keep the loan that long. Also compare total interest — a lower payment on a longer term can cost more overall.
How much does refinancing cost?
Typically 2% to 5% of the loan amount in lender fees, appraisal, title and escrow. On a $280,000 loan that is roughly $5,600 to $14,000, and it is what the break-even calculation is measured against.
How much lower does the rate need to be?
On a term-for-term refinance, a drop of less than about 0.75% rarely clears closing costs in a reasonable time. The right threshold depends on your balance and fees, not on a fixed rule.
Does refinancing reset my loan term?
Yes, unless you deliberately choose a shorter one. Taking a fresh 30-year loan when you had 26 years left adds four years of payments, which can wipe out the rate saving entirely.
What is a cash-out refinance?
Borrowing more than you owe and taking the difference in cash. It converts home equity into debt at the mortgage rate, usually with a slightly higher rate than a rate-and-term refinance.
Is a no-closing-cost refinance really free?
No. The fees are recovered through a higher interest rate or by adding them to the loan balance. It can still be the right choice if you plan to move soon, since there is nothing to break even on.
Sources and review
“Refinancing means you get a new mortgage loan and use it to pay off your current loan.”
What is a mortgage refinance, and how does refinancing work? — Consumer Financial Protection Bureau
Last reviewed .