Refinance Calculator
Compare your current loan with a refinanced loan. See monthly savings, total savings, and break-even point including closing costs. See also Mortgage Calculator and Amortization Calculator.
Current Loan
New Loan
How to Calculate Refinance Savings
To determine if refinancing makes sense, compare the total cost of your current loan with the total cost of the new loan (including closing costs). Calculate the monthly payment for both loans, find the monthly savings, then divide closing costs by monthly savings to find the break-even point. If you plan to stay in the home longer than the break-even period, refinancing is likely worthwhile.
Refinance Break-Even Formula
Monthly Savings = Current Payment − New Payment
Break-Even Months = Closing Costs / Monthly Savings
Total Savings = (Current Total Cost) − (New Total Cost + Closing Costs)
Example
Balance: $250,000
Current: 6.5% with 25 years remaining → $1,691.32/mo
New: 5.5% for 30 years → $1,419.47/mo
Monthly Savings = $1,691.32 − $1,419.47 = $271.85
Closing Costs = $5,000
Break-Even = $5,000 / $271.85 = 19 months
Refinance Scenarios Reference
| Balance | Old → New Rate | Monthly Savings | Break-Even |
|---|---|---|---|
| $200,000 | 7% → 6% | $138 | 36 months |
| $250,000 | 6.5% → 5.5% | $172 | 29 months |
| $300,000 | 7% → 5.5% | $303 | 17 months |
| $350,000 | 6% → 5% | $222 | 27 months |
| $400,000 | 7.5% → 6% | $404 | 15 months |
Frequently Asked Questions
When does refinancing make sense?
Refinancing typically makes sense when you can lower your rate by at least 0.5-1%, plan to stay in the home past the break-even point, and the closing costs are reasonable (typically 2-5% of the loan amount). The break-even point is when cumulative monthly savings exceed closing costs.
What are typical refinance closing costs?
Closing costs typically range from 2% to 5% of the loan amount. For a $250,000 loan, expect $5,000 to $12,500. Costs include appraisal fees, title insurance, origination fees, and recording fees. Some lenders offer "no-closing-cost" refinances with a slightly higher rate.
Should I refinance to a longer term?
Refinancing to a longer term lowers monthly payments but may increase total interest paid over the life of the loan. For example, refinancing a 25-year remaining balance to a new 30-year term reduces payments but adds 5 years of interest. Consider refinancing to the same or shorter term if you can afford the payments.
Solved Examples
Example 1: Refinancing from 7.5% to 5.75% on $280,000 remaining balance
Solution:
Current: $280,000 remaining, 7.5%, 25 years left, EMI = $2,069.72
New: $280,000, 5.75%, 25 years, Closing costs = $6,500
New EMI = 280,000 × 0.004792 × (1.004792)^300 / [(1.004792)^300 − 1] = $1,757.29
Monthly savings = $2,069.72 − $1,757.29 = $312.43
Break-even = $6,500 / $312.43 = 20.8 months
Total savings over 25 years = ($312.43 × 300) − $6,500 = $87,229
Answer: Saves $312.43/month, breaks even in 21 months, total savings = $87,229
Example 2: Shortening term from 30 years to 20 years at lower rate
Solution:
Current: $350,000 remaining, 7.25%, 27 years left, EMI = $2,440.71
Current total remaining = $2,440.71 × 324 = $790,790
New: $350,000, 5.5%, 20 years, Closing costs = $8,000
New EMI = $2,412.70 (slightly lower despite shorter term)
New total = ($2,412.70 × 240) + $8,000 = $587,048 + $8,000 = $595,048
Total savings = $790,790 − $595,048 = $195,742
Answer: Lower rate + shorter term saves $195,742 with nearly the same monthly payment
Example 3: Cash-out refinance to consolidate debt
Solution:
Current mortgage: $220,000 remaining at 6.75%, 28 years left, EMI = $1,521.64
Credit card debt: $35,000 at 22% APR, minimum payment = $875/month
Total current payments = $1,521.64 + $875 = $2,396.64/month
New refinance: $255,000 at 6.25%, 30 years, Closing costs = $7,200
New EMI = $1,569.78
Monthly cash flow improvement = $2,396.64 − $1,569.78 = $826.86
Caution: This resets your 30-year clock and adds $35,000 to long-term debt
Answer: Saves $826.86/month in cash flow but increases long-term interest cost
Practice Questions
Try these on your own:
- Current: $200,000 at 7%, 25 years. New: $200,000 at 5.5%, 25 years, $5,000 closing. What is the break-even month? (Answer: Monthly savings = $214.84, Break-even = 23 months)
- Is refinancing worth it with only 8 years left? $150,000 at 6.5%, 8 years left. New rate: 4.5%, 8 years, $4,500 closing. (Answer: Monthly savings = $105.23, Break-even = 43 months. Marginal benefit.)
- You owe $320,000 at 7.75% with 28 years left. A new 30-year loan at 6% costs $9,000 to close. What is the total lifetime savings? (Answer: ≈$148,420)
- Calculate the monthly savings from refinancing $180,000 from 8% to 6%, both 30-year terms. (Answer: Old EMI = $1,321.04; New EMI = $1,079.19; Savings = $241.85/month)
- A rate-and-term refinance: $400,000 from 7% (25 yr remaining) to 5.25% (20 yr). What happens to EMI? (Answer: Old = $2,880.45; New = $2,709.58; EMI decreases by $170.87 AND term shortened by 5 years)
Common Mistakes to Avoid
The biggest mistake when refinancing is not calculating the break-even point. If you plan to sell or move before reaching break-even, refinancing will cost you money. Another error is focusing only on the interest rate drop without considering closing costs — a 0.5% rate reduction might not be worth it if closing costs are high and your remaining term is short. Many homeowners also reset to a 30-year term when refinancing, which restarts the amortization clock and can mean paying more total interest even at a lower rate. Cash-out refinances are particularly risky because they convert unsecured debt into debt secured by your home. Additionally, people often forget that refinancing triggers new origination fees, appraisal costs, title insurance, and potentially points — all of which must be factored into the true savings calculation. Finally, refinancing multiple times ("serial refinancing") can trap you in perpetual interest payments if you keep resetting the loan term.
Key Takeaways
- Refinancing makes sense when you can recoup closing costs before you plan to sell (break-even analysis).
- A general rule: refinance if you can reduce your rate by at least 0.75-1.0% and stay long enough to break even.
- Shortening your loan term during refinance maximizes long-term savings even if EMI stays similar.
- Cash-out refinancing provides liquidity but puts your home at risk — use cautiously.
- Include ALL costs in your analysis: application fees, appraisal, title, recording fees, and points.
- Don't repeatedly restart a 30-year clock — consider matching your new term to remaining years.