Should you refinance?
Refinancing replaces your current loan with a new one, usually to lock a lower rate, change the term, or pull out cash. The decision is not "is the new rate lower?" but "do the monthly savings outweigh the closing costs before I move?" This calculator answers that with a single break-even number you can compare against your plans.
The break-even formula
Break-even months = Closing costs ÷ (Current payment − New payment)
Each payment is the standard amortizing amount for its balance, rate and term: M = P × [r(1+r)n] / [(1+r)n − 1]. Total interest saved compares the interest remaining on the old schedule with the interest on the new one.
Worked example
You owe $300,000 at 7.5% with 25 years left (payment ≈ $2,217). Refinance to 6% over 30 years (payment ≈ $1,799). You save about $418/month. With $5,000 of closing costs, break-even is 5000 ÷ 418 ≈ 12 months. Stay longer than a year and every month after is pure savings. If you shortened to 15 years instead, the payment would rise but lifetime interest would fall dramatically.
Rate-and-term vs cash-out
A rate-and-term refinance keeps the balance similar and just improves the terms — the scenario this tool models. A cash-out refinance increases the balance to hand you cash; model it by entering the larger new balance. Both reset the amortization clock, so a longer term can lower the payment while raising total interest.
5 tips before refinancing
- Know your break-even. If you will move before it arrives, refinancing loses money despite a lower rate.
- Shop the APR, not just the rate. Fees are baked into the APR; a slightly higher rate with low fees can win.
- Watch the term reset. Restarting at 30 years after 5 paid can add years of interest even with a lower rate.
- Compare no-cost options. A higher-rate no-fee refi breaks even immediately but costs more long term.
- Check your credit first. Even a 0.25% rate swing changes the break-even by many months.
Related calculators
Model the new loan in full with the Mortgage Calculator, see every payment with the Amortization Schedule Calculator, or weigh renting vs owning with the Rent vs Buy Calculator. Browse all Finance tools.