Mortgage Refinance Calculator

A refinance breaks even when the monthly savings have paid back the closing costs. Break-even months = closing costs ÷ monthly savings. $6,000 of closing costs and $300 a month of savings break even in 20 months. $4,000 of costs and $200 a month is also 20 months. $6,000 of costs and $100 a month is 60 months, five full years, and if you sell or refinance again before then, the refinance lost money.

That is the headline calculation, and the Refinance Calculator does it for you along with the new payment and the change in lifetime interest. The rest of this guide covers the parts that decide whether that break-even number can be trusted: a full table of break-even months, why a lower payment can cost tens of thousands of dollars more when the term resets to 30 years, what a cash-out refinance really costs, whether to roll closing costs into the loan, and how the same logic works on a car loan.

Every example below uses illustrative interest rates picked to show the arithmetic. None of them is a current market rate, and none is a prediction. Use the rate you are actually quoted.

How a refinance works

A refinance pays off your existing loan with a new one that has its own rate and its own term. A lower rate reduces the monthly payment and the interest you pay. A different term changes how long you pay it. The new loan also comes with closing costs: fees for things such as the appraisal, origination, title work and recording, and sometimes discount points you pay up front in exchange for a lower rate.

Closing costs vary by lender, loan size and location, so a rule-of-thumb percentage is a poor input. The figure worth using is the dollar amount on the Loan Estimate a lender gives you after you apply. Put that number into the calculator, not a guess.

People refinance for four main reasons:

• A lower rate on the same balance, to cut the payment and the interest.
• A shorter term, for example moving from 25 years left to 15, to pay far less total interest.
• Switching from an adjustable rate to a fixed one, to stop the payment moving.
• Taking cash out by borrowing more than you currently owe.

The calculator handles the first two directly. It can compare a fixed payment today against a fixed payment on the new loan, but it does not model how an adjustable rate would change in future, and it does not model a cash-out loan, because it uses the same balance for both loans. Both of those are covered in their own sections below.

How long does it take to break even on a refinance?

The break-even is the number of months it takes your monthly savings to repay the closing costs:

Break-even months = closing costs ÷ monthly savings Monthly savings = current monthly payment − new monthly payment

Worked through with the calculator's default inputs: a $300,000 balance at 7% with 300 months left, refinanced into a new 360-month loan at 5.5%, with $6,000 of closing costs.

• Current payment: $2,120.34 a month
• New payment: $1,703.37 a month
• Monthly savings: $2,120.34 − $1,703.37 = $416.97
• Break-even: $6,000 ÷ $416.97 = 14.39, which the calculator rounds up to 15 months

It rounds up because a partial month does not repay anything. After 14 months you have saved $416.97 × 14 = $5,837.58, still short of $6,000. After 15 months you have saved $6,254.55 and are ahead. Stay past month 15 and the refinance has paid for itself on cash flow. Sell, move or refinance again before then and it cost you money.

The calculator also shows Never when the new payment is higher than the current one, since there are no monthly savings to repay anything, and Immediate when closing costs are zero and the payment falls.

Refinance break-even table by closing costs and monthly savings

Each cell is closing costs divided by monthly savings, rounded up to a whole month, the same way the calculator rounds.

Closing costs	$50/mo	$100/mo	$150/mo	$200/mo	$300/mo	$400/mo	$500/mo
$2,000	40	20	14	10	7	5	4
$3,000	60	30	20	15	10	8	6
$4,000	80	40	27	20	14	10	8
$5,000	100	50	34	25	17	13	10
$6,000	120	60	40	30	20	15	12
$8,000	160	80	54	40	27	20	16
$10,000	200	100	67	50	34	25	20
$12,000	240	120	80	60	40	30	24
$15,000	300	150	100	75	50	38	30

Divide by 12 to read it in years: 24 months is 2 years, 60 months is 5 years, 120 months is 10 years. Two patterns stand out. Halving the closing costs halves the break-even, so $3,000 of costs at $150 a month takes 20 months where $6,000 takes 40. And small savings rarely justify real costs: at $50 a month, even $3,000 of closing costs takes five years to recover.

The honest test is not whether the break-even is short in absolute terms. It is whether the break-even lands comfortably before the date you are likely to sell, move or refinance again.

Why the real break-even can come later than the payment break-even

The calculator's break-even compares monthly payments only. That is the standard definition and it answers the cash-flow question. It leaves out one thing: a new, longer loan pays down principal more slowly in its early years, so after the refinance you can have more cash in your pocket but less equity in the house.

On the default example, after 15 months the old loan's balance would have been $294,212.27 and the new loan's balance is $294,913.29, $701.02 higher. You are $254.55 ahead on cash ($6,254.55 of savings minus $6,000 of costs) but $701.02 behind on balance, so counting both, you are not ahead until month 17.

The gap grows with the term reset. Take a $250,000 balance at 6.5% with 240 months left, refinanced into a new 30-year loan at 5.75% with $5,000 of costs. The payment falls from $1,863.93 to $1,458.93, saving $405.00 a month, and the calculator's break-even is 13 months. But at month 13 the new balance is $3,354.18 higher than the old one would have been. Counting that, the break-even is 41 months, more than three times as long.

The calculator does not compute this equity-adjusted figure. If you are refinancing into a longer term and might sell within a few years, treat the break-even it shows as the earliest possible date, not the real one.

What the refinance calculator compares, and what it leaves out

It is worth being exact about this, because a refinance decision can run into six figures.

What you enter: current loan balance, current rate, months remaining, new rate, new term in months, and closing costs. Months remaining and new term each accept 1 to 600.

What it returns:

• Current payment: the monthly principal and interest that pays off your balance at the current rate over the months remaining.
• New payment: the monthly principal and interest on the same balance at the new rate over the new term.
• Monthly savings or, when the new payment is higher, the monthly difference.
• Break-even on costs: closing costs ÷ monthly savings, rounded up.
• Lifetime interest change: the total interest left on the current loan minus the total interest on the new loan. A minus sign means refinancing reduces interest, a plus sign means it increases interest.

What it assumes:

• Both loans have the same balance. It does not add closing costs or cash out to the new loan.
• Closing costs are paid up front, in cash.
• Both loans are fixed-rate and fully amortizing, and both run to the end of their terms with no extra payments.
• Payments are principal and interest only. Property tax, homeowners insurance, mortgage insurance and escrow are not included.
• The lifetime interest change does not include the closing costs. To see the net result, subtract the closing costs from any interest saving yourself. On the default example the interest falls by $22,889.16, and $22,889.16 − $6,000 = $16,889.16 is the net saving if you keep the new loan to the end.

For the full monthly cost of owning the home, including tax and insurance, use the Mortgage Calculator.

Is it worth refinancing for 1%?

There is no fixed rate drop that makes a refinance worth it, because the answer depends on the balance, the closing costs and how long you keep the loan. The tables below hold everything else constant so you can see what a given drop is worth.

The first keeps the default example: $300,000 at 7% with 300 months left, $6,000 of closing costs, and a new loan over the same 300 months, so the term does not reset and the only thing that changes is the rate.

New rate	New payment	Monthly savings	Break-even	Lifetime interest saved	Net of $6,000 costs
6.75% (0.25 lower)	$2,072.73	$47.60	127 months	$14,280.90	$8,280.90
6.5% (0.5 lower)	$2,025.62	$94.72	64 months	$28,414.83	$22,414.83
6% (1 lower)	$1,932.90	$187.43	33 months	$56,230.02	$50,230.02
5.5% (1.5 lower)	$1,842.26	$278.08	22 months	$83,422.53	$77,422.53
5% (2 lower)	$1,753.77	$366.57	17 months	$109,970.24	$103,970.24

A 1 percentage point drop on this loan breaks even in 33 months, a little under three years. A quarter point drop still saves interest if you keep the loan for all 300 months, but it takes more than ten years just to repay the closing costs, which is longer than many people keep a mortgage.

The balance matters as much as the rate, because closing costs do not shrink in proportion to a smaller loan. Here is the same 1 point drop, 7% to 6%, over the same 300 months with the same $6,000 of costs, at different balances:

Balance	Current payment	New payment	Monthly savings	Break-even
$150,000	$1,060.17	$966.45	$93.72	65 months
$200,000	$1,413.56	$1,288.60	$124.96	49 months
$300,000	$2,120.34	$1,932.90	$187.43	33 months
$400,000	$2,827.12	$2,577.21	$249.91	25 months
$500,000	$3,533.90	$3,221.51	$312.39	20 months

The same rate drop takes more than three times as long to pay off on a $150,000 balance as on a $500,000 one. Real closing costs usually rise somewhat with loan size, so plug in your own quote, but the direction holds: a small balance needs a bigger rate drop or lower costs to make sense.

Why a lower payment can cost more when the term resets to 30 years

This is the trap a lower payment can hide. If you are years into a mortgage and refinance into a new 30-year loan, you restart the clock. The payment drops partly because of the lower rate and partly because you are now spreading the balance over more years, and those extra years carry interest.

Take the same $250,000 balance at 6.5% with 240 months (20 years) left, and a new rate of 5.75% with $5,000 of closing costs. Here is what each new term does:

Option	Monthly payment	Monthly savings	Break-even	Total interest	Lifetime interest change	Net result after $5,000 costs
Keep current loan, 240 months at 6.5%	$1,863.93	n/a	n/a	$197,343.88	n/a	n/a
New 30-year, 360 months	$1,458.93	$405.00	13 months	$275,215.57	$77,871.69 more	$82,871.69 worse
New 25-year, 300 months	$1,572.77	$291.17	18 months	$221,829.80	$24,485.92 more	$29,485.92 worse
New 20-year, 240 months	$1,755.21	$108.72	46 months	$171,250.10	$26,093.78 less	$21,093.78 better
New 15-year, 180 months	$2,076.03	$212.09 higher	Never	$123,684.54	$73,659.34 less	$68,659.34 better

The new 30-year loan has the lowest payment and the fastest break-even on the whole table, 13 months, and it is also the most expensive choice by $82,871.69 once the closing costs are counted. The lower rate is real. It is simply outweighed by ten extra years of interest.

The 15-year row shows the opposite problem. The payment goes up by $212.09, so the calculator shows the break-even as Never, yet it cuts total interest by $73,659.34. For a refinance into a shorter term, the break-even is the wrong measure. The lifetime interest change is the one to read.

The rule this table teaches: when the new term is longer than the months you have left, always check the lifetime interest change as well as the payment. The calculator shows it with a plus sign when refinancing increases total interest.

Keep paying your old payment after you refinance

There is a middle path. Take the new 30-year loan for the flexibility of a lower required payment, then keep paying the old amount voluntarily.

On the $250,000 example, the new required payment is $1,458.93. If you keep paying $1,863.93, which is $405.00 a month extra, the Loan Payoff Calculator shows the new loan paid off in 216 months, 18 years, with total interest of about $152,609. That is about $44,735 less than the $197,343.88 left on the old loan, and it finishes two years sooner than the 240 months you had left. Subtract the $5,000 of closing costs and you are still about $39,735 ahead.

Two conditions make this work. You have to actually make the extra payment every month, and the lender has to apply it to principal. Check that the new loan has no prepayment penalty before you rely on this plan.

Should you roll closing costs into the loan?

Many lenders let you add the closing costs to the new balance instead of paying them in cash. You avoid the up-front bill, but you borrow the costs and pay interest on them for the life of the loan.

The calculator cannot show this directly, because it uses one balance for both loans. Here is the arithmetic on the default example, $6,000 of costs added to a $300,000 balance at 5.5% over 360 months:

	Costs paid in cash	Costs rolled into the loan
New loan balance	$300,000	$306,000
New monthly payment	$1,703.37	$1,737.43
Monthly savings against $2,120.34	$416.97	$382.91
Cash needed at closing for these costs	$6,000	$0
Net saving if kept to the end	about $16,889	about $10,625

Rolling the costs in adds $34.06 a month to the payment. Over 360 months, the $6,000 costs about $12,264 to repay, of which about $6,264 is interest. It also leaves you with less equity: five years in, the part of the balance that came from closing costs is still about $5,548, and ten years in it is still about $4,952. If you sell in that window, that money comes out of your sale proceeds.

Rolling costs in can still be the right call if the cash is better kept as an emergency fund, or if you are paying off higher-rate debt with it. Just compare it as a cost, not as a free refinance.

How to compare a no-cost refinance

A "no-cost" refinance usually means the lender covers the closing costs in exchange for a higher interest rate, or adds them to the balance. The calculator handles the higher-rate version well. Run it twice:

1. Once with the lower rate you were quoted and the full closing costs.
2. Once with the higher no-cost rate and closing costs of $0.

Then compare the lifetime interest change minus closing costs for each. The no-cost option often wins if you will move or refinance again within a few years, because you never pay the costs you would not have recovered. The paid option tends to win the longer you keep the loan. The same method works for discount points: points are priced as a share of the loan amount, so take the dollar cost from the Loan Estimate, add it to closing costs, and run the lower rate against the no-points rate.

Cash-out refinance vs rate-and-term refinance

A rate-and-term refinance replaces your loan with a new one for about the same balance, to change the rate, the term or both. That is what the calculator models.

A cash-out refinance replaces your loan with a larger one and pays you the difference in cash. If you owe $200,000 and refinance for $250,000, you receive $50,000, minus closing costs, and your new mortgage is $250,000.

	Rate-and-term refinance	Cash-out refinance
New balance	About the same as today	Larger than today
Main goal	Lower rate, shorter term, or fixed instead of adjustable	Turn home equity into cash
Equity after closing	Roughly unchanged	Reduced by the cash taken out
What the break-even formula tells you	Whether the savings repay the costs	Little, because you are borrowing more

For a cash-out refinance the break-even formula is the wrong tool, because you are not trying to save money on the payment. You are borrowing. The useful question is what the borrowed money really costs.

What a cash-out refinance really costs

The rate on a cash-out refinance applies to the whole new balance, not just the cash you take. If your current rate is lower than the new one, you are repricing your existing loan upward to get the cash.

Take a $200,000 balance at 4% with 300 months left, refinanced into a $250,000 30-year loan at 6.5% to take out $50,000:

• Current payment: $1,055.67 a month, with $116,702.10 of interest left to pay.
• New payment: $1,580.17 a month, with $318,861.22 of interest over 30 years.
• The payment rises by $524.50 a month, about $10.49 a month for every $1,000 of cash.
• Total interest rises by $202,159.12, for $50,000 of cash, before closing costs.

That extra interest has two parts. About $63,772 is interest on the new $50,000 itself over 30 years at 6.5%. About $138,387 is the cost of moving the existing $200,000 from 4% over 25 years to 6.5% over 30 years. More than two thirds of the cost of that cash has nothing to do with the cash.

Put another way, a separate 30-year $50,000 loan would need a rate of about 16.7% before its total interest reached $202,159. That is a rough comparison of total dollars over the same 30 years, not a quote for any real product, but it shows why a cash-out refinance on a low-rate mortgage is so often the most expensive way to borrow against a home. When the new rate is lower than your current one, the repricing part turns into a saving and a cash-out refinance can make much more sense.

Three more points before you take cash out:

• The debt is secured by your home. Using a cash-out refinance to pay off credit cards turns unsecured debt into debt you could lose the house over, and stretches it across 30 years. If that is the plan, compare it against paying the cards down directly with the Credit Card Payoff Calculator.
• Tax treatment depends on how you use the money. Whether interest on the cash-out portion is deductible depends on what the cash is spent on. Confirm with IRS Publication 936 or a tax professional before counting on a deduction.
• Lenders limit how much equity you can take. The limits depend on the lender and loan program, so ask for them in writing.

When does refinancing lose money?

A refinance can lower your payment and still leave you worse off. These are the situations that do it, each with the numbers from the examples above.

You sell before the break-even. On the default example you save $416.97 a month against $6,000 of costs. Sell after 12 months and you have saved $5,003.64, so the refinance cost you $996.36.

The term reset outweighs the rate cut. On the $250,000 example, the new 30-year loan saves $405.00 a month and still costs $82,871.69 more over its life than keeping the old loan, closing costs included.

The monthly savings are too small for the costs. A quarter point drop on $300,000 saves $47.60 a month and needs 127 months to repay $6,000.

The months you have left are fewer than the break-even. If your current loan finishes before the break-even month, you can never recover the costs. This is common late in a mortgage and on car loans, as the example below shows.

Extra costs you did not count. A prepayment penalty on the old loan, new mortgage insurance, or a gap in escrow all add to what the refinance costs. Add any one-off cost to the closing costs field so the break-even includes it. The calculator does not include taxes, insurance or mortgage insurance in the payments.

You spend the savings on a longer loan. A lower required payment is only a saving if the balance is still paid off. Stretching a loan to free up cash flow is sometimes necessary, but it is borrowing time, and time costs interest.

Using the refinance calculator as a car refinance calculator

The page is built around mortgages, but the math is the same for any fixed-rate loan that is paid off in equal monthly payments, which is how a standard auto loan works. Enter the payoff balance from your current lender, your current rate, the months left on the loan, the new rate and term, and any fees for the new loan in the closing costs field. The break-even and lifetime interest change mean exactly the same thing.

Here is a $22,000 car loan balance at 9% with 48 months left, refinanced to 6.5% with $300 of fees:

New term	New payment	Monthly savings	Break-even	Lifetime interest change	Net after $300 fees
Current loan, 48 months at 9%	$547.47	n/a	n/a	n/a	n/a
48 months	$521.73	$25.74	12 months	$1,235.61 less	$935.61 better
60 months	$430.46	$117.02	3 months	$451.29 less	$151.29 better
72 months	$369.82	$177.65	2 months	$348.32 more	$648.32 worse

The same term-reset effect shows up on a smaller scale. Keeping 48 months is the only option that saves real money. Stretching to 72 months cuts the payment by $177.65 and breaks even in two months, yet it costs $648.32 more in total than leaving the loan alone.

Now a loan where refinancing cannot work: a $12,000 balance at 7% with 30 months left, refinanced to 6% over the same 30 months with $300 of fees. The payment falls from $437.18 to $431.75, a saving of $5.44 a month, so the break-even is 56 months. There are only 30 months left on the loan. Total interest falls by $163.08, which is less than the $300 in fees, so the refinance loses $136.92.

A few things are specific to cars:

• A car loses value while you pay for it. Stretching the term keeps the balance high for longer, which raises the chance you owe more than the car is worth if it is sold, written off or traded in.
• Check the old contract for a prepayment penalty and add it to the fees field if there is one.
• Some auto loans calculate interest differently. If your contract uses precomputed interest rather than a balance that declines with each payment, paying it off early can save less than the amortization math suggests. Your lender's payoff quote is the number to trust.
• Fees are usually small but not zero. Ask about lender fees and any title or lien transfer charge in your state, and put the total in the fees field.

To price a new car loan rather than refinance an existing one, use the Auto Loan Calculator, which handles price, down payment, trade-in, sales tax and fees.

How to get a better refinance

• Shop multiple lenders. Rates and closing costs vary from one lender to the next. Ask each for a Loan Estimate so the costs are laid out in the same format, then run each offer through the calculator.
• Compare net results, not rates. A lower rate with higher costs can lose to a slightly higher rate with lower costs if you will not keep the loan long. Lifetime interest change minus closing costs is the comparison that settles it.
• Watch the costs. A "no-cost" refinance usually rolls the costs into a higher rate or a larger balance. Use the two-run method above to see which version is cheaper over the time you expect to keep the loan.
• Consider a shorter term if you can afford it, to cut total interest rather than extend it.
• Check your credit first, since it affects the rate you are offered, which changes both the monthly savings and the break-even.
• Be realistic about how long you will stay. The break-even only matters relative to that date.

Common refinance break-even mistakes

Reading only the payment. A lower payment on a longer term can cost more in total. On the $250,000 example, the lowest payment was the most expensive option by $82,871.69.

Forgetting to subtract closing costs from the interest saving. The lifetime interest change in the calculator excludes closing costs. Take them off before calling a refinance a saving.

Using break-even for a shorter term. Refinancing into a shorter term often raises the payment, so the break-even shows Never even when total interest falls sharply. Read the interest change instead.

Treating break-even as the finish line on a longer term. Because a new longer loan pays down principal more slowly, the true break-even counting equity can come much later, 41 months instead of 13 in the example above.

Using the break-even formula on a cash-out refinance. The payment usually rises, so there is nothing to break even on. Measure what the cash costs, including the repricing of the balance you already had.

Guessing the closing costs. The break-even is only as good as the costs you enter. Use the Loan Estimate figure.

Ignoring the months you have left. If the break-even is longer than the remaining term, the refinance cannot pay for itself.

The bottom line

Divide closing costs by monthly savings to get the break-even, then check three things the headline number does not tell you: whether you will stay well past it, whether the lifetime interest actually falls once closing costs are subtracted, and whether a longer term is doing more of the work than the lower rate. Run your current loan against each offer in the Refinance Calculator, try more than one new term, and let the net result make the call. Rates, costs and loan terms vary by lender, so confirm every figure with the lender's own disclosures before you sign.

Related calculators

• Mortgage Calculator: the full monthly payment including property tax, insurance and mortgage insurance
• Loan Payoff Calculator: how fast extra payments clear a loan and how much interest they save
• Auto Loan Calculator: payment and total interest on a new car loan
• Credit Card Payoff Calculator: the alternative to consolidating card debt into a mortgage