When does it make sense to refinance a mortgage?

Refinancing typically makes sense when you can lower your interest rate by at least 0.5%–1%, you plan to stay in the home past the break-even point (when cumulative monthly savings exceed closing costs), or you want to switch from an ARM to a fixed rate, shorten the term, or tap equity for a major goal. Run the numbers with this calculator before deciding.

How is the refinance break-even point calculated?

The break-even point is the number of months it takes for your monthly savings to repay the closing costs. Formula: break-even months = closing costs ÷ monthly savings. For example, $6,000 in closing costs divided by $200/month in savings = 30 months. If you sell or refinance again before that point, you lose money on the deal.

What are typical refinance closing costs?

Refinance closing costs typically run 2%–3% of the loan amount and include lender fees (origination, application, underwriting), title insurance, appraisal, recording fees, and prepaid escrow items. A 'no-closing-cost' refinance wraps these into a slightly higher rate, so weigh the tradeoff carefully.

Should I refinance to a shorter term (e.g., 30 to 15 years)?

A shorter term usually gets you a lower rate and dramatically cuts total interest, but raises your monthly payment. If you can afford the higher payment and plan to stay long-term, a 15-year refinance can save tens of thousands. If cash flow is tight, keep the longer term and make extra principal payments instead.

What is a cash-out refinance and how does it work?

A cash-out refinance replaces your existing mortgage with a larger loan and gives you the difference in cash. You typically need at least 20% equity remaining after the cash-out. Rates are usually higher than rate-and-term refinance. Use the cash for home improvements, debt consolidation, or other goals — but you're converting unsecured debt to debt secured by your home.

Does refinancing reset my loan term to 30 years?

Only if you choose a 30-year term. You can refinance into any term the lender offers — 10, 15, 20, 25, or 30 years. A longer term lowers your payment but increases total interest. To preserve your original payoff timeline, pick a term close to your remaining years (this calculator shows that comparison).

How much does my credit score affect my refinance rate?

Lenders reserve their best rates for scores of 740+. Below 740, rates typically rise in 20-point tiers. Below 620, conventional refinance becomes difficult. Pull your credit report beforehand, dispute any errors, and pay down credit card balances to optimize your score before applying.

Can I refinance if my home value has dropped?

It's harder but not impossible. If your loan-to-value (LTV) exceeds 80%, you may face higher rates or PMI. Above 97% LTV, most conventional refinance options disappear. FHA streamline and VA IRRRL allow refinancing without a new appraisal, which can help when values have declined.

Refinance Calculator

A refinance calculator is a free online tool that compares your current mortgage with a refinance offer. It shows your new monthly payment, savings, break-even point, and net savings over time. Free, no sign-up required.

Current Loan & New Loan

Current Balance?Enter your current balance.

Current Interest Rate?Enter your current interest rate.

Remaining Term?Enter your remaining term.

New Interest Rate?Enter your new interest rate.

New Loan Term?The term length of your new loan.

Closing Costs?Fees paid at the closing of a real estate transaction.

End of inputs

Refinance Results

Monthly Savings

$385.99

Per month

Break-Even

21 mo (1.8 yr)

To recover costs

Net Savings

$117,060.76

Over 27 years

Current Payment

$2,253.42

Per month

New Payment

$1,867.43

Per month

Net Savings (new term)

$49,830.97

Over 30 years

Cumulative Savings & Break-Even

New Loan Payment Schedule

Month	Principal	Interest	Balance

360 months · Showing 0 rows

Key Insights

The new rate of 5.75% is 1.50% lower than your current rate — a substantial reduction that typically makes refinancing worthwhile if you plan to stay in the home beyond the break-even point.

You'll save $385.99 per month — a meaningful reduction that could free up room in your monthly budget for retirement contributions, emergency savings, or paying down higher-interest debt.

You'll recoup the closing costs in about 21 months (1.8 years). If you plan to stay in the home longer than that, refinancing is a clear win.

Over your remaining 27 years, refinancing nets about $117,060.76 in savings after closing costs — a positive long-term outcome if you stay in the home.

The new 30-year term extends your payoff by 3 years compared to your remaining 27 years. Even with a lower monthly payment, you may pay more total interest over the life of the loan.

Closing costs of $8,000.00 are within the typical 2%–3% range for a refinance of this size.

Rate change: 7.25% → 5.75% (1.50% reduction). Term change: 27y → 30y.

Guide

How to Use This Calculator

1Enter your current loan's outstanding balance — check your most recent mortgage statement.
2Set your current interest rate and the remaining years on your loan.
3Enter the new interest rate you've been quoted (or are hoping to get).
4Choose the new loan term — usually 15, 20, or 30 years.
5Add the estimated closing costs (typically 2%–3% of the loan amount).
6Review the monthly savings, break-even point, and net savings over your remaining term.
7Check the cumulative savings chart to see when you cross into positive territory.
8Read the AI-generated insights for personalized recommendations about your scenario.

Formula

How It's Calculated

Refinance monthly savings and break-even are calculated as follows:

Monthly Savings = Current Monthly Payment − New Monthly Payment
  where each payment uses the standard amortization formula:
  M = P × [r(1+r)^n] / [(1+r)^n − 1]

Break-Even Months = Closing Costs ÷ Monthly Savings
  (rounded up to the next whole month)

Net Savings (over remaining term) =
  (Monthly Savings × Remaining Months) − Closing Costs

Net Savings (over new loan term) =
  (Current Remaining Interest − New Total Interest) − Closing Costs

Cumulative Savings (month m) =
  −Closing Costs + (Monthly Savings × m)

Example: $320,000 balance, 7.25% → 5.75%, 27y → 30y, $8,000 closing costs.
- Current payment: ~$2,197
- New payment: ~$1,867
- Monthly savings: ~$330
- Break-even: 25 months
- Net savings over 27 years: ~$98,000

Note: This calculator focuses on rate-and-term refinance. Cash-out refinance
adds loan principal and changes the math.

Glossary

Key Terms

FAQ

Frequently Asked Questions

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