How this works
Refinancing replaces your existing loan with a new one — usually at a lower rate, often with a fresh term. Two questions decide whether it's worth doing: how much you'll save each month, and how long until those savings cover the upfront closing costs (the break-even). After break-even, every additional month is pure savings. Enter your current balance, current rate, years left, the new rate and term you're being offered, and the closing costs — the calculator shows the new monthly payment, the monthly delta, the break-even, and the total lifetime savings.
The formula
P = current loan balance. r = monthly rate (annual ÷ 12, decimal). n = months. Closing costs = appraisal, origination, title, recording, etc. — typically 2–5% of the loan amount on a US mortgage. The lifetime-savings figure compares total payments over the new loan's full term against what you'd have paid out on the existing loan over its remaining term, minus the closing costs you incur upfront.
Example calculation
- Current: $320,000 balance, 7.5% rate, 25 years left. Offer: 5.75% over 30 years, $4,000 closing costs.
- New monthly payment ≈ $1,867 vs current $2,365. Monthly savings ≈ $498.
- Break-even: $4,000 / $498 ≈ 8 months. Past that, refinancing is pure win — though the longer term means more total interest if you don't prepay.
Frequently asked questions
How long should I plan to stay in the home for refinancing to make sense?
Long enough to comfortably exceed the break-even period — ideally 2–3× longer. If break-even is 8 months, staying 2+ years makes refinancing a clear win. If you'll move within a year, the closing costs will likely outweigh the savings.
How big a rate drop justifies refinancing?
Old rule of thumb: 1 percentage point or more. Modern reality: it depends on the balance, fees and how long you'll stay. On a $320k mortgage even a 0.5-point drop can pay back in well under 2 years. Run your specific numbers — the calculator gives you the exact break-even, which beats any heuristic.
Will refinancing reset my mortgage clock?
Yes — that's what "new term" means. If you refinance a mortgage with 25 years left into a fresh 30-year, you're extending the total loan time by 5 years. Lower payment, but more total interest paid unless you keep paying at the old level (most lenders allow extra principal payments at no penalty).
What if my break-even is "Doesn't break even"?
It means the new monthly payment is higher than your current one — usually because the new term is much shorter. Refinancing into a shorter term to pay the loan off faster is a valid choice (you'll save on total interest), but the upfront closing costs aren't recovered through monthly cashflow. Compare the lifetime-savings figure instead.