Mortgage Refinance Calculator
Refinancing a mortgage means replacing your current loan with a new one, usually to get a lower rate and cut the payment. But refinancing is not free: there are closing costs (appraisal, fees, legal costs) paid up front. The key question is not just how much you cut the payment, but how long the monthly savings take to recoup those costs: the break-even point. This calculator compares your current payment with that of a new loan for the same balance and tells you the monthly savings and the months it takes to pay back the closing costs.
New monthly payment
Current payment:
Monthly savings
You recoup the costs in
Net interest saved
Rough estimate. It compares the current payment with that of a new loan for the same balance, and works out how many months of monthly savings cover the closing costs. It excludes insurance, taxes and prepayment penalties, and assumes you keep the loan to the end. This is not financial advice.
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How it works
First your current payment is computed from the remaining balance, your existing rate and the months left on the loan, using the standard amortization formula. Then the new loan payment is computed: same balance, the new rate and the new term you choose. The difference between the two payments is your monthly savings. The decisive figure is the break-even: you divide the closing costs by that monthly saving and get how many months until the new loan really starts saving you money. If you plan to sell or move before that point, refinancing does not pay off; if you will stay longer, every month past break-even is net saving. Bear in mind that stretching the term lowers the payment but can raise the total interest paid, even if the rate is lower.
When refinancing is worth it and when it is not
The classic rule of "refinance if the rate drops at least a point" is only a guide: what really decides is your break-even against how long you will keep the house and the loan. These are the factors that tip the balance:
| Factor | Worth refinancing | Not worth it |
|---|---|---|
| Rate drop | You cut 0.75–1 point or more | The drop is tiny (under 0.5 point) |
| Time in the house | You will stay longer than the break-even | You plan to sell before recouping the costs |
| Closing costs | They are low or savings cover them fast | They are high and stretch the break-even a lot |
| Term | You keep or shorten the remaining term | You reset to 30 years and pay more total interest |
A lower payment is not always a saving
This is the most common refinance trap. If you have 22 years left on your mortgage and refinance to a new 30-year loan, the payment drops — partly from the lower rate, but also because you stretch the debt eight more years. With a lower payment for longer, you can end up paying more interest in total even if the rate is lower. That is why it pays to look at two things at once: the monthly saving (which helps your cash flow) and the total interest paid over the life of the loan (which measures the real cost). Refinancing to a term equal to or shorter than what you had left is the way to cut the payment without falling into that trap. A cash-out refinance, where you also take money out against the home's value, increases the balance and completely changes this calculation.
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Preguntas frecuentes
- What is the break-even point?
- It is the number of months it takes to recoup the closing costs with the monthly saving from the new payment. If refinancing costs you USD 6,000 and you save USD 250 a month, the break-even is 24 months: from month 24 you actually start making money from the refinance. Before that point, you have not yet recovered what you paid.
- How much does the rate have to drop to be worth it?
- There is no magic number; the old "a full point" rule is only a guide. What matters is that the monthly saving recoups the costs before you sell or refinance again. A half-point drop can pay off if the closing costs are low and you will stay many years; a two-point drop may not pay off if you plan to move next year.
- Can I roll the closing costs into the new loan?
- Yes, that is called a "no-closing-cost refinance": instead of paying the costs up front, they are added to the new loan balance or offset with a slightly higher rate. It lowers the entry barrier, but since you finance those costs, you pay interest on them and the real saving is smaller. In the calculator you can simulate it by adding the costs to the remaining balance.
- Does refinancing reset my mortgage term?
- It depends on the term you choose. If you had 20 years left and refinance to 30, yes, you reset and stretch the debt: the payment drops but the total interest can rise. If you refinance to 20 years or less, you keep or shorten the horizon. That is why the calculator lets you choose the new term: comparing the same term against a longer one shows the true cost of stretching.
- Does the calculator work outside the United States?
- The logic is universal: any fixed-rate mortgage can be refinanced and the break-even is computed the same way. The amounts are in dollars because the term "refinancing" and closing costs are typical of the US market, but you can use the same calculator with your country's figures by mentally swapping the currency; the mechanics of the monthly saving and the break-even do not change.