🏠 Refinance Calculator

Key concepts

Refinancing replaces your existing mortgage with a new loan, and the only question that matters is whether the new loan leaves you better off — which is rarely answered by the monthly payment alone. A refinance pays off your current balance and starts a fresh loan at a new rate and term. The headline appeal is almost always a lower monthly payment, but that lower payment can come from two very different sources: a genuinely lower interest rate, or simply a longer term that spreads the same debt over more years. The first saves you money; the second can quietly cost you far more. A sound refinancing decision rests on three numbers working together — the monthly saving, the break-even point, and the honest lifetime cost — not on the payment in isolation.

Break-even analysis is the first gate. The break-even point is the upfront cash you spend refinancing divided by the monthly saving: closing costs of $4,000 against a $200 monthly saving break even in 20 months. Past that point, the lower payment is pure benefit; before it, you are still underwater on the cost of the refinance. The practical rule is simple: only refinance if you expect to stay in the home, and keep the loan, comfortably beyond the break-even point. If you might sell or refinance again before then, you will have spent more on closing costs than you ever recover, and the refinance loses money even though the monthly bill went down. Rolling closing costs into the loan changes the arithmetic — you spend no cash today, so a payment-lowering refinance breaks even immediately — but you then finance those costs at the mortgage rate for the full term, which the lifetime figure captures.

The term-reset trap is the single most expensive refinancing mistake, and it is invisible if you only watch the payment. Amortisation front-loads interest: in the early years of a loan, most of each payment is interest and little goes to principal. When you refinance, you restart that clock. If you are ten years into a 30-year mortgage and refinance into a fresh 30-year loan, you reset to year one of a new 30-year amortisation — you will now pay on the house for 40 years total instead of 30. Even at a lower rate, the extra decade of interest can exceed the rate saving, so your lifetime cost rises while your monthly payment falls. This calculator reports lifetime savings with its true sign precisely so this trap is visible: a negative lifetime saving alongside a positive monthly saving is the warning that you are trading a smaller bill today for a larger total tomorrow. The fix is to refinance into a term that matches the years you had left or shorter — a borrower with 22 years remaining should compare a 20-year refinance, which keeps the lower rate while shrinking the total cost.

No-closing-cost refinances trade upfront cash for a higher rate, and the trade is not always worth it. A no-closing-cost refinance does not eliminate the costs — the lender recovers them either by adding them to your balance or, more commonly, by quoting a rate a quarter-point or so higher. That higher rate raises your payment for the entire life of the loan. The option shines when you are short on cash or expect to keep the loan only a few years (so you would never reach break-even on upfront costs anyway). It works against you when you plan to hold the loan for decades and could have afforded the lower rate by paying costs upfront. Always compare lenders using the standardised Loan Estimate, which shows total costs and the annual percentage rate (APR) — the figure that folds fees into a single comparable rate.

Two broad kinds of refinance serve different goals. A rate-and-term refinance keeps the loan amount roughly the same and changes the rate, the term, or both — this is the classic money-saving refinance. A cash-out refinance replaces your mortgage with a larger one and hands you the difference in cash, drawing on your home equity to fund renovations, debt consolidation, or other spending; it raises your balance, your payment, and usually your rate, and should be weighed against cheaper alternatives like a HELOC. Across both, the conventional rule of thumb is to investigate refinancing when you can lower your rate by at least 0.75 to 1 percentage point and you will stay in the home past the break-even point. Two caveats frame every result here: this model covers principal and interest only — it excludes property taxes, insurance, PMI, and escrow — and it follows US conventions, so UK borrowers should use a dedicated remortgage calculator, where product fees, SVR reversion, and early-repayment charges change the maths. Treat the output as a disciplined comparison of two amortisation schedules, and let the lifetime figure, not the monthly payment, have the final word.

So when does refinancing actually make sense? Stack the conditions and the answer falls out cleanly. First, the rate drop has to be real: a reduction of at least 0.75 to 1 percentage point is the traditional threshold, because anything smaller rarely overcomes the closing costs within a reasonable horizon. Second, you must intend to stay in the home, with this loan, well past the break-even point — a refinance that breaks even in 24 months is a poor idea if you expect to sell in 18. Third, the lifetime saving has to be positive, which in practice means refinancing into a term no longer than the years you have left rather than resetting to a fresh 30-year clock. When all three line up, refinancing is one of the highest-return financial moves a homeowner can make, often saving tens of thousands of dollars for a few hours of paperwork. When even one fails — the rate barely moves, you might relocate soon, or the lower payment is only an illusion created by a longer term — the calculator's lifetime and break-even figures will tell you to wait. Run several scenarios above, varying the new term in particular, and choose the one with the best lifetime saving you can comfortably afford each month.