Refinance
Calculator
Compare your current mortgage against a refinance scenario, see your monthly savings, total interest saved, break-even period, and whether refinancing is right for you, instantly.
| Detail | Current Loan | Refinance Loan | Difference |
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Refinance Calculator: Compare Your Mortgage & Save Money
Refinancing a mortgage is one of the most significant financial decisions a homeowner can make, and understanding the numbers before committing is essential. This free refinance calculator compares your existing loan with a proposed refinance scenario side by side, computing monthly payment savings, total interest saved over the loan life, closing cost recovery period (break-even point), and a personalised recommendation on whether refinancing makes financial sense for your specific situation.
Quick example: A $400,000 mortgage at 6.5% with 25 years remaining has a monthly payment of approximately $2,701. Refinancing to 4.75% over 25 years reduces payments to $2,280, saving $420/month. With $6,000 in closing costs, break-even is just 15 months. Total interest savings: approximately $126,100.
How Mortgage Refinancing Works
Refinancing replaces your existing home loan with a new one (typically issued by a different lender) under different terms. The new lender pays off your old mortgage and you begin repaying the new loan. The most common motivations are securing a lower interest rate, changing the loan term, switching loan type, or accessing home equity (cash-out refinance).
Unlike a new purchase mortgage, refinancing does not involve a property transaction: it is purely a financing optimisation exercise. The key financial question is whether the savings from the new terms outweigh the upfront closing costs, and how long it takes to recover those costs through monthly savings.
Understanding the Break-Even Point
The break-even point is the number of months for cumulative monthly payment savings to equal the upfront closing costs. It is the single most important number in a refinancing decision.
Break-even formula:
Break-even (months) = Closing costs ÷ Monthly payment savings
Example: $8,000 closing costs ÷ $320/month savings = 25 months
Stay beyond 25 months and refinancing saves money. Sell before month 25 and you lose on the transaction.
A break-even under 24 months is generally excellent. 24 to 48 months is acceptable for homeowners with stable plans. Beyond 48 months, refinancing requires careful consideration of your expected time in the property.
How the Refinance Calculator Formula Works
This calculator measures whether switching to a new loan saves money once closing costs are accounted for. It runs the standard mortgage payment formula twice, once for your current loan and once for the proposed refinance, then compares the two results to find your monthly savings, total interest saved, and how long it takes the savings to repay the closing costs.
| Step | Formula | Notes |
|---|---|---|
| Current payment | EMI = P × r × (1+r)ⁿ ÷ [(1+r)ⁿ − 1] | Using your current balance, rate, and remaining term |
| New payment | Same formula | Using the new loan amount (plus any cash-out), rate, and term |
| Monthly savings | Current payment − New payment | Can be negative if the new term is shorter |
| Break-even | Closing costs ÷ Monthly savings | Months until the savings repay the upfront cost |
P is the loan amount for each side of the comparison (your current balance for the current loan, and the new balance, including any cash-out, for the refinance). r is the monthly interest rate for each loan. n is the number of months in each loan’s term. Total interest for each loan comes from simulating the full month-by-month amortization, not just the payment formula, which is how the calculator can also show total interest saved over each loan’s full life.
Step-by-step calculation walkthrough
Step 1: Identify the inputs. Current balance: $250,000. Current rate: 7.25%, 20 years remaining. New rate: 5.5%, same 20-year term. Closing costs: $4,500.
Step 2: Apply the formula. Current payment = 250,000 × (0.0725/12) × (1+0.0725/12)^240 ÷ [(1+0.0725/12)^240 − 1]. New payment uses the same formula with 5.5% in place of 7.25%.
Step 3: Perform the calculation. Current payment = $1,975.94/month. New payment = $1,719.72/month. Monthly savings = 1,975.94 − 1,719.72 = $256.22. Break-even = 4,500 ÷ 256.22 = 18 months (rounded up).
Step 4: Interpret the result. This refinance pays for itself in 18 months. Every payment after that point is pure savings compared to staying on the current loan, provided the homeowner stays in the property at least that long. If they plan to sell or refinance again within 18 months, this particular refinance wouldn’t have time to pay off its own closing costs.
📐 The recommendation banner, break-even progress bar, comparison table, and cumulative interest chart shown in your results all read from these same two amortization runs. Adding cash-out or extra payments doesn’t introduce a new formula, cash-out increases the new loan’s starting balance before the calculation runs, and extra payments feed into the same month-by-month simulation used to compute total interest.
Assumptions and limitations: the payment and interest figures are exact given accurate rate and term inputs, but the break-even calculation assumes your monthly savings stay constant, which holds for a fixed-to-fixed refinance but not if either loan has a rate that changes over time. It also compares total interest over each loan’s own remaining term, if the new term is longer than the time left on the current loan, part of the “total interest” comparison reflects a longer commitment, not purely a lower rate. Always weigh a longer new term against your original loan’s remaining time before assuming a lower payment alone means a better deal.
When Should You Refinance?
Refinancing makes the most financial sense when several conditions align:
- Current market rates are at least 0.75%–1% below your existing rate
- You plan to remain in the property well beyond the break-even period
- Your credit score has improved, qualifying you for better terms
- You have substantial remaining term, more interest remains to be saved
- Closing costs are moderate relative to the loan balance
Refinancing is less likely to be worthwhile with a short remaining term (few years left), plans to sell soon, or disproportionately high closing costs.
Closing Costs Explained
Refinancing closing costs cover the same categories of fees paid on a purchase mortgage. The CFPB explains which fees are typically charged at closing and who pays them, useful context since not every fee is negotiable or avoidable.
| Fee type | Typical cost | Notes |
|---|---|---|
| Loan origination fee | 0.5%–1% of loan | Charged by the new lender |
| Home appraisal | $300–$700 | Required to verify current property value |
| Title search & insurance | $500–$1,500 | Confirms clear ownership |
| Attorney / escrow fees | $500–$1,000 | Varies by state or country |
| Prepayment penalty | 1%–2% of balance | Check your existing loan terms |
| Typical total range | 2%–5% of loan | $8,000–$20,000 on a $400K loan |
Interest Rate Impact on Savings
| Rate reduction | Monthly saving ($400K, 25yr) | Total interest saved | Break-even ($6K costs) |
|---|---|---|---|
| 6.5% → 6.0% (−0.5%) | ~$124/mo | ~$37,100 | ~49 months |
| 6.5% → 5.5% (−1.0%) | ~$244/mo | ~$73,300 | ~25 months |
| 6.5% → 4.75% (−1.75%) | ~$420/mo | ~$126,100 | ~15 months |
| 6.5% → 4.0% (−2.5%) | ~$589/mo | ~$176,800 | ~11 months |
Tips to Maximise Your Refinancing Savings
Improve your credit score first
Even a 20-point improvement can move you to a better rate tier, potentially saving tens of thousands over the loan term.
Shop at least 3–5 lenders
Rate differences of 0.25%–0.5% between lenders are common. Credit unions and online lenders often beat major banks.
Add extra repayments post-refinance
Even $200/month extra after refinancing can save $40,000+ in interest and cut years off the new loan term.
Consider a shorter term
Refinancing from 30 to 15 years at a lower rate dramatically reduces total interest, though monthly payments increase.
Negotiate closing costs
Some fees are negotiable. Title insurance and origination fees can often be reduced. Compare itemised loan estimates across lenders.
Act before the loan midpoint
The earlier in the loan term, the more front-loaded interest remains: refinancing yields the greatest benefit in the first half of the term.
Common Refinancing Mistakes
- Focusing only on monthly savings: A lower payment from extending the term can cost more in total interest, always check the lifetime cost.
- Resetting the amortisation clock: Refinancing a 20-year loan back to 30 years dramatically increases lifetime interest even at a lower rate.
- Ignoring prepayment penalties: Some mortgages charge 1–2% of the balance for early payoff, factor this into the true cost calculation.
- Refinancing too frequently: Each cycle resets amortisation and incurs new costs, there must be a clear financial case each time.
- Not accounting for closing costs: Focusing on rate alone without including fees gives a misleadingly optimistic picture of true savings.
3 Real-Life Examples
Three different refinancing situations, calculated the way the tool above does it.
| Situation | Inputs | Result | What it means |
|---|---|---|---|
| Shortening the term from 25 to 15 years | $320,000 balance, 6.75% current rate with 25 years remaining, refinancing to 5.25% over 15 years. | Payment rises from $2,211 to $2,572/month, but total interest drops from $343,275 to $143,034. | The monthly payment goes up by $361, yet total interest falls by roughly $200,000, the classic trade-off of accepting a higher payment to build equity faster and pay far less interest overall. |
| Cash-out refinance for a home renovation | $280,000 balance, 6.9% current rate with 22 years remaining, refinancing to 6.0% over 25 years with a $40,000 cash-out for renovations. | Payment stays nearly flat: $2,064/month currently versus $2,062/month on the new loan. | Despite borrowing an extra $40,000, the lower rate and slightly longer term keep the monthly payment essentially unchanged, though the homeowner now owes more overall and resets their amortization clock. |
| A refinance that doesn’t clear its own break-even | $180,000 balance, 6.25% current rate with 10 years remaining, refinancing to 5.75% over the same 10-year term, with $7,000 in closing costs. | Monthly savings: only $45.20. Break-even: approximately 155 months, longer than the 120-month loan term. | Because the rate improvement is modest and the remaining term is short, the savings never fully repay the closing costs before the loan itself ends, exactly the scenario this calculator’s recommendation banner is built to flag. |
These are illustrative calculations using the same amortization formula the calculator above applies. They’re a planning tool, not a substitute for an actual lender quote.
Important Notes
- These are simulated projections, not a loan offer. The amortization math is exact given accurate inputs, but actual approval, rate, and fees depend on your lender and creditworthiness.
- Rounding. Displayed currency figures round to the nearest whole unit, or abbreviate to K, M, or B for large values.
- The break-even calculation assumes constant monthly savings. This holds for a fixed-to-fixed refinance, but not if either loan carries a rate that changes over time.
- Comparing total interest across two different terms isn’t purely a rate comparison. If your new term is longer than your current loan’s remaining time, part of the “interest saved” reflects a longer commitment, not just a lower rate. Match terms when you want a pure rate comparison.
- Closing costs entered manually reflect your own estimate or quote. Actual fees vary by lender, loan program, and location, always confirm with an itemized Loan Estimate before comparing offers.
- Prepayment penalties on your current loan aren’t calculated automatically. Check your existing loan terms and add any penalty to your closing costs input to get an accurate break-even figure.
- Data privacy. All calculations run in your browser. Your inputs aren’t sent to a server, and the PDF is generated locally on your device.
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