Refinance Calculator
Likely yes — break-even is 19 months. Worth it if you plan to stay that long.
Calculations use the standard amortization formula. Does not include property taxes, insurance, or PMI changes. Consult a mortgage professional before refinancing.
When Does Refinancing Make Sense?
Refinancing replaces your existing mortgage with a new loan — ideally at a lower interest rate, a different term, or both. The decision is not just about getting a lower rate; it is about whether the savings you gain outweigh the costs you pay to get there. The central question is always: how long will it take to break even?
The break-even point is calculated by dividing your closing costs by the monthly savings on your new payment. If you spend $4,000 to close the new loan and save $150 per month, you break even in about 27 months. If you plan to sell the home in 18 months, refinancing does not make financial sense — you would not recover the costs.
As a general guideline: if your break-even point is under 24 months and you plan to stay in the home for at least that long, refinancing is usually worth pursuing. If the break-even is 3–5 years, the math still works but with less certainty about future plans. Beyond 5 years, consider whether there are better ways to reduce your monthly expenses.
Rate-and-Term Refinance vs. Cash-Out Refinance
Rate-and-term refinance changes only the interest rate or term on your existing mortgage. You borrow the same balance you currently owe. This is the most common type of refinance and the one this calculator addresses. The goal is simple: reduce your monthly payment, reduce total interest paid, or both.
Cash-out refinance lets you borrow more than you currently owe and take the difference as cash. For example, if your home is worth $400,000 and you owe $200,000, you might refinance into a $250,000 loan and receive $50,000 in cash. This is popular for home improvements or consolidating high-interest debt. However, it increases your mortgage balance, resets your equity, and typically carries a slightly higher rate than a rate-and-term refi. The break-even calculation in this calculator does not apply to cash-out refinances, as the purpose is not just rate savings.
How Much Can You Save? Example Scenarios
| Loan Balance | Old Rate | New Rate | Monthly Savings | Closing Costs | Break-Even |
|---|---|---|---|---|---|
| $200,000 | 7.0% | 5.5% | ~$185 | $4,000 | 22 months |
| $350,000 | 7.5% | 6.0% | ~$310 | $6,000 | 20 months |
| $150,000 | 6.5% | 5.5% | ~$88 | $3,500 | 40 months |
| $500,000 | 6.75% | 5.75% | ~$312 | $8,000 | 26 months |
Approximate figures. Assumes 30-year term on both loans. Actual savings vary.
Choosing the Right New Loan Term
When refinancing, you are not required to choose another 30-year term. In fact, extending back to 30 years when you only have 20 years left on your current loan can increase your total interest paid even if the monthly payment drops. Consider these options:
Match your remaining term. If you have 22 years left, refinance into a 20-year loan. Your payment may be similar or slightly higher, but you maintain your payoff timeline and benefit from the lower rate.
Shorten the term to 15 years. A 15-year mortgage typically carries a rate 0.5–0.75% lower than a 30-year loan. If your current remaining term is 25+ years, moving to a 15-year can dramatically cut total interest even with a higher monthly payment.
Extend to 30 years for maximum payment relief. If cash flow is the priority — perhaps due to job change or other financial pressures — extending to 30 years provides the maximum reduction in monthly obligation. Just know that you will pay more total interest over the life of the loan.
Frequently Asked Questions
How do I calculate my refinance break-even point?
Divide your total closing costs by the monthly savings from the new lower payment. For example, if you pay $4,000 in closing costs and save $120 per month, your break-even point is $4,000 / $120 = 33 months. This means you need to stay in your home for at least 33 months (2 years and 9 months) after refinancing to come out ahead financially.
What is a good interest rate drop to justify refinancing?
A common rule of thumb is that refinancing makes sense if you can reduce your rate by at least 0.5% to 1%. However, the right threshold depends on your loan balance and how long you plan to stay. On a $300,000 loan, even a 0.5% drop saves roughly $90/month. On a $100,000 loan, you need a larger rate drop to offset the same $4,000 in closing costs within a reasonable time frame.
What is the difference between rate-and-term refinancing and cash-out refinancing?
Rate-and-term refinancing replaces your existing mortgage with a new one at a lower interest rate or different term, without changing the principal. You keep your equity intact. Cash-out refinancing replaces your mortgage with a larger loan, letting you pocket the difference as cash. Cash-out refis are useful for home improvements or debt consolidation but reset your equity and typically carry a slightly higher rate.
Should I restart a 30-year term or choose a shorter term when refinancing?
Restarting a 30-year term gives the lowest possible monthly payment but extends your debt timeline and increases lifetime interest. A 15-year term typically offers a lower rate (often 0.5–0.75% lower than 30-year) and builds equity faster, but the monthly payment is higher. The best choice depends on your cash flow needs. Refinancing into a 20-year or 25-year term is a middle ground that maintains progress without drastically increasing payments.
What closing costs should I expect when refinancing?
Refinancing closing costs typically run 2–5% of the loan amount, or roughly $2,000–$6,000 on a $200,000 loan. Common fees include: origination fee (0.5–1%), appraisal ($400–$600), title search and insurance ($500–$1,000), recording fees ($50–$200), and prepaid escrow for property taxes and insurance. Some lenders offer "no-closing-cost" refinancing, but they roll the costs into the rate or the loan balance.
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