Refinance Calculator
Compare your current mortgage payment with a refinanced loan and find the break-even month for closing costs and the lifetime savings.
Current Mortgage
Refinance Terms
Updated Formula covered by automated tests
Refinancing replaces your current mortgage with a new one, usually to get a lower interest rate, change the term, or switch from an adjustable to a fixed rate. This calculator compares the payment you make now with the payment on a new loan for the same balance, then tells you the break-even month: how long the monthly savings take to repay the closing costs you hand over at signing.
It also shows what you would pay in total over the remaining life of each loan. That second number catches a trap the monthly payment hides: if you are 5 years into a 30-year mortgage and refinance into a fresh 30-year loan, you add 5 years of payments, and a lower rate does not always make up for them.
The formula
- B
- Remaining principal balance on the current loan, which the new loan pays off
- r
- Monthly interest rate: annual rate ÷ 12 ÷ 100 (current or new loan)
- n₁
- Months left on the current mortgage
- n₂
- Months in the new loan: new term in years × 12
- ⌈ ⌉
- Round up to the next whole month, since savings arrive one payment at a time
Both payments come from the standard amortization formula for a fixed-rate loan, which sets the present value of all future payments equal to the balance borrowed. Taxes, insurance and mortgage insurance held in escrow are left out because they do not change when you refinance.
The break-even calculation assumes you pay closing costs in cash at closing. If you instead roll them into the new loan, enter a balance that includes them and set closing costs to zero; the higher balance then raises the new payment, and the true cost shows up in the lifetime comparison rather than the break-even month.
Worked example
Sam owes $250,000 with 300 months (25 years) left at 6.5%. A lender offers a new 30-year loan at 5.5% with $5,000 in closing costs.
- 1 Current payment: r = 0.065 ÷ 12 over 300 months gives $1,688.02 a month.
- 2 New payment: r = 0.055 ÷ 12 over 360 months gives $1,419.47 a month.
- 3 Monthly savings: $1,688.02 − $1,419.47 = $268.55.
- 4 Break-even: $5,000 ÷ $268.55 = 18.6, so the costs are recovered in month 19.
- 5 Lifetime: $1,688.02 × 300 = $506,405 versus $1,419.47 × 360 + $5,000 = $516,010.
Result: Sam breaks even in month 19 and saves $268.55 a month, but because the new loan runs 5 years longer, he pays about $9,605 more over its full life. Choosing a 25-year term at the same 5.5% would instead give a $1,535.22 payment, break even in month 33 and save about $40,840 overall.
Before you rely on the result
- Ignores the time value of money, the tax treatment of mortgage interest and points, and any changes to escrowed taxes or insurance.
- Assumes both loans are fixed-rate and paid exactly as scheduled with no extra principal payments.
- Cash-out refinances, adjustable-rate loans and mortgage insurance removal need a fuller analysis; a HUD-approved housing counselor or your lender can walk through the Loan Estimate with you.
Frequently asked questions
How long do I need to stay in the house for refinancing to pay off?
At least until the break-even month. If you expect to sell or refinance again before then, the closing costs will not be recovered. Leave a margin, because a job move or another rate drop can arrive sooner than planned.
Why does my monthly saving look good but lifetime savings are negative?
Restarting the clock spreads the balance over more months, which lowers the payment even without a rate cut. The extra months of payments at the end can outweigh the lower rate. Comparing with a new term equal to your remaining term isolates the effect of the rate.
What counts as closing costs on a refinance?
Typically the lender’s origination fee, any discount points you buy, the appraisal, title search and title insurance, recording fees and prepaid items. Your Loan Estimate lists them; use the total from the closing cost section, not the cash-to-close figure, which also includes escrow deposits.
Is a no-closing-cost refinance really free?
Usually the lender covers the fees by charging a higher rate or adds them to the balance. That avoids cash up front, so the break-even month is effectively immediate, but you pay for it through every future payment. Compare the offers by entering each one’s balance, rate and costs.
Sources
- CFPB: Loan Estimate explainer (consumerfinance.gov)
- Federal Reserve: A Consumer’s Guide to Mortgage Refinancings (federalreserve.gov)