How to use the mortgage refinance calculator
- Enter your current loan balance, interest rate and remaining years.
- Fill in the new rate, new term length and estimated closing costs.
- Optionally add a cash-out amount if you plan to borrow more than you owe.
- Review the results for your monthly saving, break-even timeline and total interest difference.
How the refinance math works
A mortgage refinance calculator compares two amortizing loans using the standard payment formula:
P = L * r / (1 - (1 + r)^(-n))
Where L is the loan balance, r is the monthly interest rate (annual rate divided by 12) and n is the total number of payments. For example, a $250,000 balance at 6.5% over 25 years gives a monthly rate of 0.005417 and 300 payments. Plugging those in yields a payment of about $1,688.02.
The new loan uses the same formula with the new rate, the new term and a balance equal to your current balance plus any cash-out. Closing costs are treated as paid at closing, so they are not added to the loan. The difference between the old and new payments is your monthly saving or increase. Lifetime interest compares the interest still to be paid on the current loan with the interest on the whole new loan.
The figures are principal and interest only. Property tax, insurance, mortgage insurance and lender-specific fees are left out, so treat the output as an estimate, not financial advice.
Finding the break-even point
The break-even point tells you how long it takes for monthly savings to cover upfront closing costs. It is simply:
Break-even months = Closing costs / Monthly saving
If closing costs are $5,000 and you save $268.55 per month, the break-even is about 19 months. If you plan to move before reaching that point, refinancing may not make financial sense. This refinance break even calculator logic is built into the results above, which round the answer up to whole months.
When the new payment is higher than the old one, there is no break-even because you never recover the costs through monthly savings. That situation can still be intentional, such as shortening the loan term to pay off the house faster.
Cash-out refinancing explained
A cash-out refinance replaces your existing mortgage with a larger loan and gives you the difference in cash. The new loan balance equals your current balance plus the cash-out amount, and often plus closing costs if they are financed rather than paid at closing.
Because the balance is higher, your new payment might not drop even if the interest rate is lower. Use this refinance calculator to test whether the monthly payment stays manageable after adding the cash-out. You should also consider that borrowing against home equity increases your total debt and the interest paid over time.
Common refinancing mistakes
One frequent error is focusing only on the interest rate while ignoring the term length. Extending a 20-year remaining term to a new 30-year term lowers the payment but adds a decade of interest, often costing tens of thousands more overall. Always check the lifetime interest delta shown in the results.
Another mistake is underestimating closing costs. Appraisal fees, title insurance, origination charges and recording fees commonly total around 2% to 6% of the loan amount, depending on lender and state. Entering an accurate figure ensures the break-even calculation reflects reality.
Finally, some borrowers forget that rolling closing costs into the loan means paying interest on those costs for the entire term. Paying them out of pocket instead keeps the new balance lower, which is the case this calculator assumes.
Reference: savings on a $250,000 balance
The table below shows approximate monthly payments and savings for a $250,000 loan refinanced from various rates into a 30-year term. Values assume no cash-out and no closing costs added to the balance.
| Old rate (30 yr) | New rate (30 yr) | Old payment | New payment | Monthly saving |
|---|---|---|---|---|
| 7.00% | 5.50% | $1,663.26 | $1,419.47 | $243.79 |
| 6.50% | 5.50% | $1,580.17 | $1,419.47 | $160.70 |
| 6.00% | 5.50% | $1,498.88 | $1,419.47 | $79.41 |
| 5.50% | 5.00% | $1,419.47 | $1,342.05 | $77.42 |
These figures illustrate why even a half-point drop matters over hundreds of payments. For a full amortization schedule, use a dedicated mortgage calculator.
Method and sources
Worked example with the default inputs: the current payment is $1,688.02, the new payment $1,419.47, a monthly saving of $268.55; closing costs are recovered in 19 months. Lifetime interest changes by $4,604.73.
Method: both payments from the amortization formula (current loan over its remaining term, new loan over the new term); break-even = closing costs / monthly saving, rounded up. Principal and interest only: taxes, insurance, mortgage insurance and lender credits are excluded. Closing costs are very lender- and state-specific; a figure of roughly 2% to 6% of the loan is commonly quoted, so get a Loan Estimate. Resetting to a longer term lowers the payment but usually raises lifetime interest, which the lifetime row shows.
Worked examples
| Example | Input | Result |
|---|---|---|
| Lower rate, same term | Current loan balance ($): 300000; Current interest rate (%): 7; Remaining term (years): 27; New interest rate (%): 5.75; New term (years): 30; Closing costs ($): 6000; Cash-out amount ($): 0 | Current payment: $2,063.44; New payment: $1,750.72; Monthly saving: $312.73; Break-even: 20 months; Lifetime interest change: -$38,297.43; Net change after closing costs: -$32,297.43; New loan balance: $300,000.00 |
| Shorten the term | Current loan balance ($): 200000; Current interest rate (%): 5.5; Remaining term (years): 25; New interest rate (%): 5; New term (years): 15; Closing costs ($): 4000; Cash-out amount ($): 0 | Current payment: $1,228.17; New payment: $1,581.59; Monthly increase: $353.41; Break-even: Never (no monthly saving); Lifetime interest change: -$83,766.79; Net change after closing costs: -$79,766.79; New loan balance: $200,000.00 |
| Cash-out refinance | Current loan balance ($): 180000; Current interest rate (%): 6.25; Remaining term (years): 28; New interest rate (%): 6.5; New term (years): 30; Closing costs ($): 5500; Cash-out amount ($): 40000 | Current payment: $1,135.76; New payment: $1,390.55; Monthly increase: $254.78; Break-even: Never (no monthly saving); Lifetime interest change: $78,980.94; Net change after closing costs: $84,480.94; New loan balance: $220,000.00 |
| Small rate drop | Current loan balance ($): 150000; Current interest rate (%): 4.5; Remaining term (years): 20; New interest rate (%): 4; New term (years): 20; Closing costs ($): 3000; Cash-out amount ($): 0 | Current payment: $948.97; New payment: $908.97; Monthly saving: $40.00; Break-even: 75 months; Lifetime interest change: -$9,600.86; Net change after closing costs: -$6,600.86; New loan balance: $150,000.00 |
FAQ
What is a mortgage refinance calculator?
It is a tool that compares your existing mortgage to a proposed new loan. It calculates the difference in payments, the break-even period for closing costs and the total interest saved or added over the life of the loan.
How do I calculate the refinance break-even point?
Divide your total closing costs by the monthly payment savings. If closing costs are $4,000 and you save $200 per month, the break-even is 20 months. After that point, the refinance has paid for itself.
Should I include closing costs in the new loan balance?
This calculator assumes you pay closing costs at closing, so they are not added to the new balance and they drive the break-even figure. If you plan to finance them, add the same amount to the cash-out field to see the higher payment and total interest, and treat the break-even figure as a rough guide only.
Does a cash-out refinance always raise my payment?
Not necessarily. If the new interest rate is much lower, or the new term is longer, the payment could stay the same or even drop despite the higher balance. Enter your numbers in the calculator to see the exact result.
Is it worth refinancing for a 0.5% rate drop?
It depends on your balance, remaining term and closing costs. On a large loan with low closing costs, half a percent can save hundreds per month and reach break-even quickly. On a small balance nearing payoff, the savings may not justify the fees.
Can I use this to compare different lenders?
Yes. Run the calculator once for each lender's offered rate, term and estimated closing costs. Compare the break-even months and lifetime interest delta to identify the best deal.
Why can the lifetime interest go up even with a lower rate?
Because a new 30-year term restarts the clock. If you have 22 years left and refinance into 30, you pay interest for eight more years. Choose a new term equal to the remaining term to compare fairly.