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How to read the result
- Monthly savings: current principal and interest minus the new payment. Taxes and insurance do not change when you refinance, so they are left out.
- Break-even: closing costs ÷ monthly savings. If you expect to sell or refinance again before then, the refinance loses money.
- Lifetime result: interest left on the current loan minus (interest on the new loan + closing costs). A longer new term can lower the payment and still cost more in total; this line shows that trade-off.
Worked example
Balance $300,000, 330 months left at 7.5%: payment = $2,150.12. New 30-year loan at 6.25%: $1,847.15. Savings: $302.97 a month. Break-even: $6,000 ÷ $302.97 = 20 months. Interest left on the old loan: $409,539; interest on the new loan: $364,975. After the $6,000 in costs, lifetime interest falls by $38,564, even with 30 extra months of payments.
Savings by rate drop ($300,000, 30-year to 30-year)
| Current rate | New rate | Monthly savings | Break-even on $6,000 |
|---|---|---|---|
| 7.5% | 7% | $102 | 59 months |
| 7.5% | 6.5% | $201 | 30 months |
| 7.5% | 6% | $299 | 21 months |
| 7% | 6.25% | $149 | 41 months |
| 7% | 5.75% | $245 | 25 months |
| 8% | 6.5% | $305 | 20 months |
Closing costs
Refinance costs usually include an origination or underwriting fee, appraisal, title insurance, recording fees and any discount points. Ask lenders for a Loan Estimate, a standard form, so you can compare offers line by line. A “no-closing-cost” refinance folds the costs into a higher rate or the balance; enter $0 costs and the higher rate to compare it fairly.
When refinancing tends to make sense
- The rate drop pays back the costs well before you expect to move.
- You want to remove PMI or FHA mortgage insurance after your home has gained value.
- You are moving from an adjustable rate to a fixed rate.
- You can shorten the term without straining your budget.
Example rates are for comparison only, not offers or current quotes. Your rate depends on credit, loan-to-value and lender.
Sources and assumptions
- Principal and interest use the standard amortization formula M = P × r ÷ (1 − (1 + r)−n).
- Break-even ignores the tax effect of mortgage interest and the time value of money.
- CFPB: Loan Estimate explainer
Related
Frequently asked questions
How do I know if refinancing is worth it?
Divide closing costs by the monthly savings to get the break-even month. If you will keep the loan longer than that, and lifetime interest also falls, the refinance is likely worth it.
Does refinancing restart my loan?
Yes. A new 30-year loan starts a new 30-year schedule. To avoid adding years, choose a term close to the time left on your current loan.
How much does it cost to refinance?
Costs vary by lender and loan size. Enter the total from your Loan Estimate; the calculator does not assume a percentage.
Should I include taxes and insurance?
No. They stay the same after a refinance, so compare principal and interest only, as this calculator does.