Compare your current mortgage to a new loan — savings, total interest and breakeven.
When refinancing makes sense
Refinancing pays when interest savings outweigh closing costs within the time you’ll keep the loan. Classic triggers: rates fallen 0.75–1% below your rate, improved credit score, or wanting to change term. Refinancing to chase a slightly lower rate while resetting to a fresh 30-year term can cost more in lifetime interest.
The breakeven point
Closing costs ÷ monthly savings = breakeven months. $6,000 ÷ $417 ≈ 14.4 months — every payment after is pure gain. Under two years is attractive; beyond four, think carefully about how long you’ll stay.
Rate vs. term tradeoffs
A lower rate with the same term is the cleanest win. Shortening to 15 years slashes lifetime interest but raises payments. Extending lowers payments but can increase total interest. Compare both numbers.
What is the breakeven point?
Closing costs divided by monthly savings — months until the refinance pays for itself.
Should I refinance for 1% less?
Often yes, but check breakeven: on a large balance even 0.5% works; on small balances 1% may not cover costs.
Does the loan term matter?
Enormously. A fresh 30-year term restarts amortization. Compare lifetime interest, not just monthly payment.
What are typical closing costs?
Usually 2–5% of the loan: origination, appraisal, title, prepaids. ~$6,000–$15,000 on $300,000.
What is a cash-out refinance?
Borrowing more than owed, pocketing the difference against equity. Sensible for renovations, risky for spending.
How to use this calculator
Enter your current loan on the left and the proposed new loan on the right. The calculator compares the two side by side.
- Current loan balance. What you still owe — not the original amount. Find it on your latest mortgage statement or servicer’s website. Using the original balance overstates your savings.
- Current interest rate. Your existing contract rate, exactly as printed on your note — not today’s market rate.
- Remaining term. How many years are left on the current loan. If you are 6 years into a 30-year mortgage, enter 24, not 30. This matters enormously: refinancing into a fresh 30-year term restarts amortization and can cost more in lifetime interest even at a lower rate.
- New interest rate. The rate you have been quoted or are modeling. A useful rule from the guide above: savings usually become compelling when the new rate is 0.75–1% below your current one, though large balances can justify smaller drops.
- New loan term. Most refinances reset to 30 years, but modeling 20 or 15 years shows the tradeoff between monthly savings and lifetime interest.
- Closing costs. Total settlement charges: origination, appraisal, title, and prepaids. Expect 2–5% of the loan amount — roughly $6,000–$15,000 on a $300,000 balance. Your Loan Estimate lists these line by line within three business days of application.
Understanding your results
- Current monthly payment vs. new monthly payment. The two P&I figures side by side, computed on the same amortization math.
- Monthly savings. The difference between the two payments. This is your “gain” — but only after closing costs are recovered.
- Breakeven horizon (months). Closing costs divided by monthly savings. A $5,500 cost against $184/month savings breaks even in about 30 months. Every payment after that point is pure gain; selling or refinancing again before breakeven means the refinance lost you money.
- Total lifetime interest savings. The full-term comparison of interest paid under both loans, before subtracting closing costs. Always read this together with the breakeven — a big lifetime number means little if you will move in three years.
- Net benefit after closing costs. Lifetime interest savings minus what you paid to refinance. This is the true bottom line: if it is positive and your breakeven falls inside your expected stay, the refinance is worth doing. Lenders advertising “no-closing-cost” refinances simply roll the costs into a higher rate or balance — run those offers through the same inputs to see the real tradeoff.
Worked example
A homeowner owes $280,000 at 7.00% with 30 years remaining and is offered 6.00% for 30 years with $5,500 in closing costs.
- Current payment: $1,862.85/month
- New payment: $1,678.74/month
- Monthly savings: $184.11
- Breakeven: $5,500 ÷ $184.11 ≈ 30 months
- Lifetime interest — current loan: $390,625; new loan: $324,347
- Net lifetime benefit after closing costs: $60,778
Verdict: if the homeowner stays longer than two and a half years, the refinance wins clearly. Selling at month 18 would leave roughly $2,200 of closing costs unrecovered.
Frequently asked questions
Will refinancing hurt my credit score?
Expect a small, temporary dip. The hard inquiry typically costs a few points, and the new account lowers your average account age. Scores usually recover within a few months of on-time payments — and the lower rate often improves your debt-to-income picture, which helps future borrowing.
How long does a refinance take to close?
Most refinances close in 30–45 days from application: appraisal, underwriting, and the mandatory three-day closing disclosure review. Streamline products (like FHA or VA interest-rate-reduction refinances) can close faster because they skip the appraisal and much of the income documentation.
Should I pay points to buy down the refinance rate?
Only if you will keep the loan long enough for the lower rate to repay the points. One point (1% of the loan) typically buys about a 0.25% rate reduction. Divide the points cost by the extra monthly savings to get a second breakeven — then add it to your closing-cost breakeven before deciding.
Is there a waiting period before I can refinance?
Conventional loans have no mandatory seasoning for a rate-and-term refinance — you can refinance the month after closing if the numbers work. Cash-out refinances usually require six months of ownership, and FHA/VA streamline products require a minimum number of on-time payments.
What paperwork will the lender ask for?
The standard package: two months of bank statements, two years of tax returns and W-2s (or 1099s), recent pay stubs, homeowner’s insurance declarations, and your current mortgage statement. Having these ready before you apply is the single biggest lever on closing speed.