How to use this calculator
- Enter your Current loan balance, Current interest rate and Years remaining (not the original term).
- Enter the offer you are considering: New interest rate and New loan term.
- Add Refinancing costs, meaning every fee you pay to close the new loan.
- Read Monthly savings, the Break-even point in months and the Lifetime savings after costs.
How the comparison works
A refinance replaces your balance with a new loan. The calculator computes the fixed monthly payment on the current loan (using the years you have left) and on the new loan (using the new rate and term), then compares them.
Break-even months = Costs ÷ (Old payment − New payment)- Costs = total refinancing fees you pay
- Old payment = payment on the current loan for its remaining term
- New payment = payment on the new loan, using M = P · r(1 + r)^n / ((1 + r)^n − 1)
- P = balance, r = monthly rate, n = number of months
The break-even point is the number of months of payment savings needed to cover the closing costs. Lifetime savings compare the interest you would still pay on each loan, minus those costs.
Example: 7% down to 6% on a $250,000 balance
Say you owe $250,000 at 7% with 25 years left and are offered 6% over a new 25-year term with $4,000 in costs. The payment falls from $1,767 to $1,611, a saving of $156 a month, so you break even after 26 months.
Interest still to pay drops from about $280,084 to $233,226. After the $4,000 costs, that is roughly $42,858 saved over the life of the loan, provided you keep the loan to the end.
Watch the term, not just the rate
Stretching the term can make the monthly saving look better while costing you more. In the example above, taking the 6% loan over 30 years instead of 25 lowers the payment by $268 and breaks even in 15 months, but total interest rises to about $289,595, so lifetime savings turn negative at about −$13,511.
The opposite also works. A 15-year loan at 5.5% would raise the payment to $2,043 (the calculator warns that there is no monthly saving) yet cut remaining interest to about $117,688. Decide whether your goal is cash flow or total cost, and compare options in the loan comparison calculator.
How to decide
Refinancing usually makes sense when the break-even point is comfortably shorter than the time you expect to keep the loan. If you might move in two years, a 26-month break-even loses money.
Check what the old loan would cost if you simply paid it down faster with the loan payoff calculator, and see how a mortgage balance evolves on the amortization calculator.
Common mistakes
- Entering the original term instead of the years remaining, which overstates the savings.
- Rolling closing costs into the new balance and forgetting they accrue interest.
- Restarting a 30-year clock after ten years of payments, which resets how fast you build equity.
- Comparing only the rate; fees, points and lender credits change the real cost.
- Ignoring prepayment penalties on the current loan.
Assumptions and limits
Both loans are treated as fixed-rate with equal monthly payments. The tool leaves out taxes, insurance, escrow, mortgage insurance changes, cash-out amounts, tax effects and the time value of money, so the break-even month is a guide, not a guarantee.
Get a Loan Estimate from the lender with the exact costs and rate lock before deciding.
Frequently asked questions
When is refinancing worth it?
When you will keep the loan well past the break-even point and the new terms lower either your payment or your total interest in a way that matches your goal.
How is the break-even point calculated?
Refinancing costs divided by the monthly payment saving, rounded up to whole months.
What does refinancing cost?
Costs vary by lender and loan: they can include origination, appraisal, title and recording fees. Enter the total from your Loan Estimate.
Does refinancing hurt my credit?
A lender credit check and a new account can cause a small, usually temporary dip. Shop rates within a short window so the inquiries are treated together.
Should I shorten the term when I refinance?
A shorter term usually cuts total interest sharply but raises the monthly payment. Choose it only if the higher payment fits your budget with room to spare.