How This Mortgage Refinance Calculator Works

Refinancing replaces your current mortgage with a new one — usually at a lower rate, sometimes at a different term. You pay closing costs up front (typically 2–5% of the loan amount) and in exchange you get a lower monthly payment. The question that decides whether it is worth it is the break-even point: how many months of lower payments it takes to recoup the closing costs. Sell or refinance again before break-even and you lose money on the deal; stay past it and every additional month is real savings.

Both payments use the standard amortization formula, so the comparison is apples-to-apples on principal and interest. Property tax, insurance and HOA are excluded because refinancing generally does not change them — they are the same before and after, so they cancel out of the saving.

Worked example: a $300,000 balance at 7.5% with 25 years left costs $2,217 a month in principal and interest. Refinancing the same $300,000 at 6.0% over 30 years costs $1,799 a month — a saving of $418 a month. With $6,000 in closing costs, break-even is $6,000 ÷ $418 = 14.3 months, about 1.2 years. Stay longer than that and the refinance pays; move sooner and it does not.

Practical tips

Do not judge a refinance by the payment alone.

Resetting to a new 30-year loan stretches repayment. Part of a lower payment can come from the longer term, not the lower rate — always compare total interest to term as well.

Plan to stay well past break-even.

A common rule of thumb is to stay at least 1.5× the break-even period. Break-even at 14 months means planning to stay roughly two years or more.

Use your Loan Estimate, not a quote.

Closing costs from a Loan Estimate are the binding-ish figures. Advertised rates without costs make every refinance look better than it is.

Consider a shorter new term.

A 20- or 15-year refinance may save less monthly but far more in total interest — and it avoids resetting the clock to 30 years.

Cash-out is not savings.

Cash taken out raises the new balance. This calculator compares rate-and-term refinancing; do not count borrowed cash as a saving.