Refinancing replaces your current mortgage with a new one—potentially saving money, lowering payments, or changing loan terms. This calculator helps you determine if refinancing makes financial sense by calculating your break-even point and total savings.
How This Calculator Works
This calculator analyzes your refinance decision:
- Current Loan Balance: What you still owe
- Current Rate: Your existing interest rate
- New Rate: Proposed refinance rate
- Closing Costs: Fees for the new loan
- New Term: How long for the new loan
- Break-Even: Months until savings exceed costs
- Total Savings: Net benefit over time
The Formula Explained
Monthly Savings = Old Payment - New Payment
Break-Even Months = Closing Costs / Monthly Savings
Net Savings = (Monthly Savings × Remaining Months) - Closing Costs
If you'll stay beyond break-even, refinancing makes sense.
Step-by-Step Example
Refinance Analysis
| Current Mortgage | Value |
| Balance | $300,000 |
| Rate | 7.0% |
| Payment (P&I) | $1,996 |
| Remaining | 27 years |
| Refinance Option | Value |
| New Rate | 6.0% |
| New Term | 30 years |
| New Payment | $1,799 |
| Closing Costs | $8,000 |
Monthly Savings: $197 Break-Even: 41 months (3.4 years) 10-Year Net Savings: $15,640
Frequently Asked Questions
When does refinancing make sense?
Refinancing generally makes sense when: (1) New rate is 0.5-1%+ lower than current, (2) You'll stay in the home past break-even, (3) You want to change loan terms (shorten, remove PMI), (4) You need cash out (equity extraction). Run the numbers for your specific situation.
What is the break-even point?
Break-even is when cumulative savings equals closing costs. If closing costs are $9,000 and you save $300/month, break-even is 30 months. You must stay in the home beyond break-even to benefit. Shorter break-even = safer bet.
What are typical refinance closing costs?
Refinance closing costs typically run 2-5% of loan amount: $6,000-$15,000 on a $300,000 mortgage. Costs include: origination fee, appraisal, title insurance, attorney fees, recording fees. "No-closing-cost" refinances exist but usually have higher rates.
Should I refinance into a new 30-year loan?
Restarting a 30-year clock lowers payments but may cost more overall. If you have 20 years left, refinancing to 30 years extends your payoff by 10 years. Consider: Keep old payment amount on new lower rate = faster payoff with savings. Or refinance to 15-20 years if affordable.
What's a cash-out refinance?
Cash-out refinancing lets you borrow against equity. If you owe $200,000 on a $400,000 home, you could refinance for $280,000 and get $80,000 cash. Uses: home improvement, debt consolidation, investing. Risk: you're increasing your mortgage debt.
How does refinancing affect my taxes?
Mortgage interest is deductible (if you itemize and loan is under $750K). Refinancing doesn't change this but affects amounts. Points paid on refinance are deductible over the loan's life, not immediately (unlike purchase). Consult a tax advisor for your situation.
Can I refinance with bad credit?
More difficult but possible. Options: (1) FHA Streamline—for existing FHA loans, minimal credit requirements. (2) VA IRRRL—for VA loans, no credit check. (3) Non-QM lenders—higher rates but flexible qualification. Improving credit before refinancing saves significant money.
What's the difference between rate-and-term and cash-out refinance?
Rate-and-term: Change rate or term without borrowing more (may include closing costs in loan). Cash-out: Borrow more than you owe, receive difference as cash. Cash-out typically has slightly higher rates and requires more equity.
Key Points to Remember
- Calculate break-even: Don't refinance if you'll move before break-even
- Include all costs: Closing costs, points, and any prepaid items
- Consider term carefully: Restarting 30 years extends total payoff
- Rate drop threshold: Usually need 0.5-1% lower rate to be worthwhile
- Shop multiple lenders: Rates and fees vary significantly
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