About the Refinance Calculator
Refinancing can lower your monthly payment or shorten your loan term, but it also comes with closing costs that need to be recouped before the new loan actually saves you money. Our Refinance Calculator compares your current mortgage to a new one and shows the exact break-even point.
How It Works
The calculator computes your current monthly principal & interest payment based on your remaining balance, rate, and years left, then computes what the payment would be under the new rate and term. It divides your closing costs by the monthly savings to find how many months it takes before the refinance pays for itself.
Formula & Methodology
Break-even math here is straightforward division - closing costs divided by monthly savings gives the number of months before the upfront cost is recovered - but the monthly savings figure itself depends on more than just the rate difference. Resetting to a new term (even at a lower rate) changes how much of each payment goes to interest versus principal, so a true apples-to-apples comparison should account for both the rate change and any change in remaining term, not just eyeball the two monthly payment figures.
Step-by-Step: Calculating It By Hand
- 1Calculate your current monthly principal & interest payment from your remaining balance, current rate, and years left.
- 2Calculate the new monthly payment using the new loan's rate and term.
- 3Subtract the new payment from the current payment to find monthly savings.
- 4Divide total closing costs by monthly savings to find the break-even point in months.
Examples
Clear savings
Refinancing a $300,000 balance from 7.2% to 6.2% with $4,000 in closing costs might save a few hundred dollars a month, breaking even in well under two years.
Marginal savings
A smaller rate drop with the same closing costs stretches the break-even point out much further - worth checking against how long you actually plan to stay in the home.
Advantages
- Shows the exact break-even month, not just a vague 'it depends'
- Compares real monthly payments side by side, current versus new
- Accounts for extending or shortening your remaining term
- Helps avoid refinancing when the numbers don't actually work in your favor
Common Mistakes
- Refinancing without knowing how many more years you'll stay in the home relative to the break-even point
- Forgetting that resetting to a new 30-year term extends how long you pay, even at a lower rate
- Not shopping multiple lenders for both rate and closing costs, which both vary significantly
- Ignoring the impact of extending the loan term on total lifetime interest paid
Edge Cases to Watch For
- Resetting to a new 30-year term extends your total payoff timeline even if the rate is lower, which can increase lifetime interest paid despite a lower monthly payment.
- A cash-out refinance increases the loan balance itself, which changes this comparison beyond a simple rate-and-term swap.
- Rolling closing costs into the new loan balance (rather than paying them upfront) changes both the break-even calculation and the total amount financed.
- Refinancing resets the amortization schedule, meaning early payments on the new loan are interest-heavy again, even if you were already well into your original loan's principal-heavy years.
Common Use Cases
- Deciding whether current rates make refinancing worthwhile
- Comparing offers from multiple lenders on an apples-to-apples basis
- Estimating how long you need to stay in a home to benefit from refinancing
- Weighing a rate-and-term refinance against a cash-out refinance