Refinance calculator

How to tell if a refinance is worth it

A refinance replaces your mortgage with a new one. You pay closing costs again, and in return you get a new rate, a new term or cash. The question is simple: will you keep the new loan long enough for the savings to pay back the costs? Both payments come from the standard amortization formula:

M = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)

P is the balance, r is the yearly rate divided by 12, and n is the number of monthly payments left. Here is the calculator's opening example: $300,000 left at 8.00% with 27 years to go, refinanced into a 30-year loan at 7.24% with 3% closing costs paid in cash.

1. 1

   Your payment today

   $300,000 at 8.00% ÷ 12 over 324 months = $2,262.84 of principal and interest. If you're on schedule, this matches your statement.

2. 2

   The new payment

   $300,000 at 7.24% over 360 months = $2,044.49. The difference is $218.35 a month.

3. 3

   The cost

   3% of $300,000 is $9,000 for the appraisal, title, lender fees and the rest.

4. 4

   Break-even

   $9,000 ÷ $218.35 = 41.2, so the costs are paid back in month 42, about three and a half years. Counting interest saved instead of payment saved, it takes until month 50 (see below).

5. 5

   The long run

   The old loan has $433,160 of interest left. The new one charges $436,018, because it runs three years longer. With the $9,000 of costs, keeping the new loan to the end costs $11,858 more in total. The win is real only if you sell, refinance again or pay extra before then.

Two ways to count the break-even

The usual shortcut divides costs by the drop in the monthly payment. It is easy, and it is what most lenders quote. But when you reset to a new 30-year term, part of that lower payment is not savings at all: you are simply paying the principal back more slowly.

The stricter test compares the interest each loan charges month by month. In the first year of the example, the old loan charges $23,882 of interest and the new one $21,625, a real saving of $2,257. Counted that way, the $9,000 is earned back in month 50, not 42. The chart above draws both lines. If you plan to stay somewhere between the two months, the deal is closer than it looks.

Break-even by rate drop and closing costs

$300,000 balance at 8.00% with 27 years left, refinanced into a new 30-year loan. Months to break even on the payment method.

The old rule of thumb said to wait for a full point or two. The table shows why that rule is too blunt: a half-point drop with low costs can pay back faster than a full point with high costs. On small drops, the interest method also stretches the wait: at 0.50 point and 3% costs it takes 86 months instead of 55.

New term: 30 years, shorter, or the same date

The term you pick changes the answer more than the rate does. In the example:

• New 30-year at 7.24%: $2,044.49 a month, the biggest payment cut, but three more years of payments and $11,858 more paid in total.
• Same payoff date (27 years) at 7.24%: $2,110.61 a month, saving $152.23. Interest falls by $49,323, and after costs you pay $40,323 less in total.
• 15-year at 6.60%: $2,629.84 a month, $367 more than now, but you're done 12 years sooner and pay $250,788 less in total.

Pick "Same date" in the calculator to keep your payoff date. You can also take the 30-year loan and keep paying your old amount: the extra goes to principal and you keep the lower required payment as a cushion. Our mortgage calculator shows what extra payments save.

Closing costs and points

A refinance has most of the costs of a purchase loan: origination, appraisal, credit report, title insurance, settlement, recording and prepaid interest. Freddie Mac tells borrowers to expect 3% to 6% of the loan principal. You have three ways to pay:

• In cash at closing. The cleanest break-even, and the calculator's default.
• Rolled into the loan. No cash needed, but you borrow the costs and pay interest on them. In the example the loan grows to $309,000, the savings fall to $157.01 a month and break-even moves to month 58.
• Lender credit ("no-closing-cost" refinance). The lender covers some costs in exchange for a higher rate. Enter that rate and 0% costs to compare it.

Discount points work the other way: you pay 1% of the loan per point for a lower rate. How much rate a point buys varies by lender and day. Treat each point like extra closing costs and check that the break-even still lands well inside the time you expect to stay.

Cash-out refinancing

A cash-out refinance pays off your loan with a bigger one and hands you the difference. Add an amount under "Cash out" and the calculator adds it, and the costs on it, to the new loan. The monthly savings figure is no longer a fair test then, because you are borrowing more. Compare the cost of that cash with other options instead, such as a HELOC or home equity loan, which leave your first mortgage and its rate alone.

On the default $450,000 home, 80% is a $360,000 loan. With $300,000 owed and 3% costs rolled in, that leaves room for roughly $49,000 of cash. Lenders often price cash-out loans a little higher than a plain rate-and-term refinance.

Mistakes to avoid

• Judging by the payment alone. Stretching the term lowers the payment even at the same rate. Look at total cost and the interest break-even too.
• Ignoring how long you'll stay. If you might move in three years, a 42-month break-even loses money.
• Getting one quote. Ask for Loan Estimates from at least three lenders on the same day and compare section A and the APR.
• Forgetting PMI. If the new loan is over 80% of the home's value, a conventional loan adds mortgage insurance, which this calculator does not include.
• Counting escrow as a cost. Your old escrow balance is refunded after the payoff and the new account is funded again. It moves money around but is not a fee.

Sources and assumptions

• Default rates: Freddie Mac, Primary Mortgage Market Survey, week of October 29, 2026: 30-year fixed 7.24%, 15-year fixed 6.60%. The 20-year and same-date options also start at the 30-year average. National averages for strong-credit borrowers; your quote can be higher or lower.
• Closing costs of 3% to 6% of the loan principal: Freddie Mac, Understanding the costs of refinancing. The 3% default is the low end of that range. Costs and points are figured on the balance plus any cash out.
• Cash-out limits: Fannie Mae Eligibility Matrix (80% for a one-unit principal residence, 75% for 2 to 4 units). FHA's 80% limit is from HUD Handbook 4000.1. Lenders can be stricter.
• Math: standard fixed-rate amortization with monthly compounding. The current payment is figured from today's balance, rate and years left, which matches your real payment if the loan is on schedule. Payment break-even is costs ÷ monthly savings, rounded up to a whole month. Interest break-even is the first month when the interest saved adds up to the costs.
• Not included: PMI, escrow refunds and deposits, prepaid interest timing, taxes and the mortgage interest deduction, adjustable-rate changes and prepayment penalties.
• This calculator is an educational estimate, not an offer of credit or financial advice. Talk to a licensed lender, or find a HUD-approved housing counselor. Rates checked October 29, 2026.

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