Refinance Calculator
Determine if refinancing makes sense by comparing your current loan to a new loan offer.
Results
Visualization
How It Works
The Refinance Calculator helps you decide whether refinancing your loan makes financial sense by comparing your current monthly payments and total interest costs against a new loan offer. By calculating your break-even point and total savings, you can determine if the benefits of refinancing outweigh the upfront closing costs. This tool is designed for both quick estimates and detailed planning scenarios. Results update instantly as you adjust inputs, making it easy to compare different approaches and understand how each variable affects the outcome. For best accuracy, use precise measurements rather than rough estimates, and consider running multiple scenarios to establish a realistic range of expected results.
The Formula
Variables
- Current Loan Balance — The remaining principal you owe on your existing loan — not the original amount borrowed, but what you still need to pay off
- Current Interest Rate — Your present loan's annual percentage rate (APR), expressed as a percentage — this is what you're currently paying
- Months Remaining — How many months are left on your current loan — for example, a 30-year mortgage with 10 years paid would have 240 months remaining
- New Interest Rate — The annual percentage rate offered by the new lender — typically lower than your current rate if refinancing makes sense
- New Loan Term — The length of the new loan in months — you can keep it the same length or change it (shorter terms mean higher payments but less total interest)
- Closing Costs — Upfront fees charged by the new lender including origination fees, appraisal fees, title insurance, and other transaction costs — these reduce your refinance savings
Worked Example
Let's say you have a $200,000 mortgage with a 5% interest rate and 240 months remaining. A lender offers you a new 30-year (360-month) loan at 3.5% with $3,000 in closing costs. Your current monthly payment is approximately $1,194. The new payment would be about $898 per month, saving you $296 monthly. To break even on the $3,000 closing cost, you'd need to keep the loan for roughly 10 months (3,000 ÷ 296). If you plan to stay in your home for at least 2-3 years, refinancing would save you thousands in total interest.
Practical Tips
- Calculate your break-even point first — if you plan to move or pay off the loan before reaching break-even, refinancing usually doesn't make sense financially
- Don't forget closing costs — they can range from 2-5% of your loan amount and significantly impact your refinance decision; always get a loan estimate with itemized costs
- Consider your credit score's impact on rates — your actual interest rate offer depends partly on your creditworthiness, so check your score before applying to estimate realistic offers
- Shorter loan terms save money on interest but increase monthly payments — refinancing to a 15-year mortgage instead of 30 years costs more monthly but pays off decades faster
- Lock in your rate once you're ready — interest rates change daily, so once you find a favorable rate, request a rate lock to prevent it from increasing before your closing date
Frequently Asked Questions
Is refinancing worth it if I only plan to stay a few more years?
Usually not. Your break-even point shows how long you need to keep the loan to recoup closing costs. If you're selling or paying off the loan before reaching break-even, you'll lose money on refinancing. Many people break even within 1-3 years, but it depends on your rate reduction and closing costs.
What closing costs should I expect when refinancing?
Closing costs typically range from $2,000 to $6,000 (or 2-5% of the loan amount) and include application fees, appraisal, credit check, title insurance, and lender fees. Always request a Loan Estimate form, which lenders must provide within three days of application — this shows exact costs upfront.
Should I refinance into a shorter or longer loan term?
Shorter terms (15 years instead of 30) build equity faster and cost less in total interest but significantly increase monthly payments. Longer terms reduce monthly payments but increase total interest paid. Choose based on your monthly budget and how long you plan to stay — the calculator helps you compare both scenarios.
How much of an interest rate drop makes refinancing worthwhile?
A general rule is that refinancing makes sense if you can lower your rate by at least 0.5-1%, but this varies based on your closing costs and how long you'll keep the loan. This calculator shows your specific break-even point, which is more accurate than any general rule.
Does refinancing hurt my credit score?
Refinancing temporarily lowers your credit score by 5-10 points because lenders make a hard credit inquiry and you'll have a new loan account. However, the impact is temporary — your score typically recovers within 3-6 months, and the long-term savings from refinancing usually outweigh this brief dip.
Sources
- Consumer Financial Protection Bureau (CFPB) - Mortgage Refinancing Guide
- Federal Trade Commission (FTC) - Understanding Mortgage Closing Costs
- Fannie Mae - Refinancing Information for Homeowners