Mortgage Refinance Calculator

Mortgage refinancing—replacing your current mortgage with a new loan, typically at a lower interest rate or different term—can save tens of thousands of dollars over your loan's life or provide useful cash flow relief. However, refinancing involves closing costs of $3,000-$6,000 or more, requiring careful break-even analysis to ensure savings justify expenses. Understanding when refinancing makes sense, calculating break-even periods, comparing rate-and-term versus cash-out refinancing, and timing decisions based on rate trends and your plans empowers you to recognize genuine opportunities while avoiding costly mistakes.

The traditional refinancing rule of thumb—refinance when you can reduce your rate by at least 1%—remains reasonable for basic screening but oversimplifies the decision. A more accurate approach calculates monthly savings, closing costs, and break-even period. For a $300,000 mortgage at 7.0% with $1,996 monthly payment, refinancing to 6.0% costs $1,799 monthly, saving $197 monthly. With $4,500 in closing costs, break-even is 23 months (4,500 ÷ 197). If you plan to keep the home 5+ years, you'll save $7,320 net ($197 × 60 months - $4,500 costs) over 5 years, making refinancing worthwhile. However, if you're planning to sell or refinance again within 2 years, you won't reach break-even and should skip refinancing.

Different refinancing scenarios serve different goals. Rate-and-term refinancing maintains your loan balance while improving terms—lower rate, shorter term, or both. This is the most common refinancing type focused on interest savings. Cash-out refinancing increases your loan balance, giving you the difference in cash for home improvements, debt consolidation, or other purposes. For example, if your home is worth $500,000 with $250,000 remaining mortgage, cash-out refinancing to $350,000 provides $100,000 in cash but restarts your loan clock and increases payments. Term-change refinancing switches between 30-year and 15-year terms: refinancing from a 30-year to 15-year mortgage increases monthly payments but dramatically reduces total interest, while switching from 15-year to 30-year reduces monthly payments but increases total interest. Each scenario requires specific analysis of costs versus benefits aligned with your goals.

Optimal refinancing timing considers multiple factors beyond just rate differences. How long you've had your current mortgage matters—refinancing after 10 years of a 30-year loan means you've already paid substantial interest, so savings from refinancing are smaller than refinancing after just 2-3 years. Your remaining loan balance affects break-even: refinancing a $400,000 balance saves more per rate point than refinancing a $150,000 balance, potentially justifying higher closing costs. Current home equity influences refinancing options—you typically need 20% equity for best rates and to avoid PMI. Your credit score affects rate eligibility—improving your score by 40-60 points before refinancing might earn 0.25-0.5% better rates, significantly increasing savings. Future plans are critical: refinancing makes no sense if you're selling within the break-even period. The key is calculating specific break-even periods based on your situation, considering all costs including potential PMI or different loan types, exploring multiple scenarios (different terms, cash-out options), and honestly assessing your likelihood of keeping the home beyond break-even. No-closing-cost refinancing offers an alternative where higher rates cover fees—useful for uncertain timelines but more expensive long-term. Run the numbers for your specific situation rather than relying on rules of thumb to determine if refinancing makes financial sense.

Example: $7,000 closing costs ÷ $427 monthly savings = 16 months. Stay longer than the break-even to profit from the refinance.

Expect to pay 2-6% of the new loan amount. Budget for lender fees, third-party costs, government fees, and prepaid items.