How mortgage refinance calculator works
Refinancing means replacing your existing home loan with a new one, usually at a lower interest rate or different term. The new lender pays off your old loan balance and you begin making payments on the new loan. The goal is to reduce your monthly payment, pay less total interest over time, or both — but closing costs (appraisal fees, title insurance, origination fees) eat into those savings until you've recouped them through lower payments.
This calculator amortizes both your current loan (using its remaining balance, rate, and years left) and the proposed refinance loan (using the same balance, the new rate, and new term). It computes the fixed-rate monthly payment for each using the standard formula M = P × r ×(1+r)^n /((1+r)^n −1). The difference in monthly payments shows immediate cash-flow impact. Total interest on each loan reveals long-term cost. Closing costs are subtracted from interest savings to show net benefit.
The break-even point tells you how many months of monthly savings it takes to recover your closing costs. If you plan to sell before then, refinancing may not be worthwhile even if the rate looks better. The net savings figures compare total costs: full-term net savings assumes you keep the new loan to maturity; comparison-term net savings uses the shorter of the two terms for a conservative estimate. A shorter term (e.g., 15 years instead of remaining 25) often raises the payment but can save tens of thousands in interest.
Frequently asked questions
Should I refinance my mortgage?
It depends on three numbers: how much you'll save per month, what closing costs are, and how long you plan to stay in the home. If monthly savings recoup closing costs within 2–3 years and you'll stay longer than that, refinancing is usually worthwhile. Use this calculator's break-even figure to decide.
What are typical refinance closing costs?
Closing costs typically range from 2% to 5% of the loan amount. On a $250,000 refinance, expect $5,000–$12,500. These include appraisal fees ($300–$500), title search and insurance ($500–$2,000), origination fees (0–1%), escrow deposits, and recording fees. Enter the actual quote you received for an accurate break-even calculation.
Is it better to get a shorter term when refinancing?
Often yes. Refinancing from a 30-year loan (with 25 years left) into a 15-year loan typically increases your monthly payment slightly but cuts your total interest dramatically — sometimes by $100,000 or more. This calculator shows the tradeoff: higher monthly cost versus massive long-term savings.
What if my new rate is higher than my current rate?
Refinancing at a higher rate rarely makes sense unless you're switching from an adjustable-rate to a fixed-rate loan (to lock in stability) or shortening the term enough to offset the rate increase via faster principal payoff. The calculator will show a negative monthly savings and 'never' break-even in that scenario.
Does this include property taxes or insurance?
No. This calculator compares principal-and-interest payments only. Your actual payment includes property taxes, homeowners insurance, and possibly PMI or HOA fees. Since these don't change when you refinance (or change predictably), they cancel out in a comparison — focus on the P&I difference.
