Refinance calculator

See when a refinance pays back its closing costs — and whether it lowers the total interest over the life of the loan, or just the monthly payment. Those are two different questions.

How the math works

The calculator runs two amortized loans and compares them. Each monthly payment comes from the standard fixed-rate mortgage formula.

Where M is the monthly payment, P is the loan balance, i is the monthly rate (annual rate divided by 12), and n is the number of payments. It computes M for the balance you have left at your current rate and remaining term, then again for the new rate and new term.

The monthly-payment break-even is the number every refinance calculator shows: closing costs divided by monthly savings. If you save $282 a month and pay $4,200 to refinance, you recover the cost in about 15 months. Simple, and not the whole story.

The second number is total interest over the life of each loan — payment times the number of payments, minus the principal. Refinancing a loan you're partway through back to a fresh full term restarts amortization, which is front-loaded toward interest. That reset can raise the lifetime interest even when the rate and the payment both drop. The calculator shows the interest change so you can see both answers at once.

Worked example

Take a $320,000 mortgage at 6.85% — the recent Freddie Mac 30-year average — with 27 years left. The current principal-and-interest payment is $2,169.81 a month. A lender offers a new 30-year at 5.85%, a full one-point drop, for $4,200 in closing costs paid in cash.

The new payment is $1,887.81. That's $282 a month saved, so the $4,200 in costs pays back in 15 months. Anyone staying in the house longer than that is ahead on the monthly math.

Now the part the monthly figure hides. Interest left on the old loan comes to $383,019. Interest on the new loan is $359,612 — lower by $23,407, even after resetting the clock from 27 years to a fresh 30. Net of the $4,200 in costs, the refinance saves $19,207 over the full life. Here the one-point drop is large enough to beat the three extra years of payments. That is not always true, which is the next section.

When this calculator is wrong

Refinancing for a rate drop under a full point usually loses money once you account for the reset term. On the same $320,000 balance, dropping only half a point — from 6.85% to 6.35% on a fresh 30-year — cuts the payment to $1,991.15, a monthly saving of $178.66. The costs still break even, at 24 months. But total interest on the new loan is $396,816 against $383,019 left on the old one. The lower payment costs $13,796 more interest over the life of the debt, because the three extra years of payments outweigh the smaller rate cut.

Other ways the simple break-even misleads:

• Rolling the costs into the loan moves the break-even. Finance the $4,200 instead of paying cash and the new balance becomes $324,200. The payment rises to $1,912.59, the monthly saving shrinks to $257.22, and break-even slips to 17 months — plus you now pay interest on those closing costs for 30 years.
• Resetting the clock is the hidden cost. The deeper you are into the current loan, the more a fresh full term hurts, because you restart the front-loaded interest schedule. Refinancing to a term that ends when your current one would — or shorter — sidesteps this. Most calculators default you to a new 30 without a word about it.
• It assumes you keep the loan the whole term. The median homeowner sells or refinances again well before 30 years. If you'll be gone in five, the lifetime-interest number is academic and the break-even month is what counts.
• It ignores the cash you tie up. Closing costs paid in cash are money that could have earned a return elsewhere. At a 4.00% high-yield savings rate, $4,200 parked instead of spent is a small but real drag on the break-even.

What to do with the result

Read both numbers, not just the monthly saving. If the break-even is comfortably shorter than how long you plan to stay, the refinance clears the first hurdle. Then check the lifetime interest change: if it's negative, the refinance lowers your total cost; if it's positive, you're buying a lower monthly payment by paying more interest overall, which is a real choice but not a free one.

When the lifetime number goes the wrong way and you still want the lower payment, ask the lender for a term that matches your remaining years rather than a fresh 30. A shorter term at the lower rate is usually where the total-cost math turns back in your favor. And whatever you save each month only counts if it goes somewhere — a lower payment spent is not a saving.

Common questions

What rate drop makes a refinance worth it?

There's no universal rule, but the arithmetic tends to work at a drop of a full point or more, and tends to lose below half a point once you account for closing costs and the reset term. Run your own numbers — the break-even and the lifetime-interest change together tell you, not a rule of thumb.

What's the difference between the break-even and the lifetime cost?

The break-even is how many months of lower payments it takes to recover the closing costs. The lifetime cost is the total interest over the whole loan. A refinance can pass the break-even test and still cost more total interest, because a fresh full term stretches the payments out. This calculator shows both.

Should I roll closing costs into the loan or pay cash?

Paying cash keeps the new balance — and the interest on it — lower, so the lifetime cost is smaller. Rolling costs in avoids an out-of-pocket hit but means you pay interest on those costs for the full term. Check the box in the calculator to see how much the break-even and total move.

Does refinancing to a shorter term make sense?

Often, if you can handle the payment. Matching the new term to your remaining years, or going shorter, avoids the amortization reset that inflates lifetime interest. The rate is usually lower on shorter terms too. The payment goes up, but the total interest usually goes down.

Is a cash-out refinance the same math?

No. A cash-out refinance raises the balance you borrow, so the payment and total interest both rise even at a lower rate. This calculator models a rate-and-term refinance, where the balance stays the same. For cash-out, add the amount you're taking to the balance and read the result as the cost of that borrowing.