Refinance Calculator
Find out how much you could save by refinancing your mortgage. Calculate your new monthly payment, break-even point, and total lifetime savings in seconds.
When Does It Make Sense to Refinance Your Mortgage?
Refinancing your mortgage is one of the most significant financial decisions a homeowner can make. Done at the right time and for the right reasons, a refinance can save you tens of thousands of dollars over the life of your loan, dramatically reduce your monthly payment, or help you tap into your home's equity for major expenses. Done at the wrong time — or without a clear understanding of the costs involved — it can actually cost you money.
The most commonly cited rule of thumb is the "1% rule": if you can reduce your interest rate by at least 1 percentage point, a refinance is worth investigating. However, this is an oversimplification. The actual question is how long it will take you to recoup the closing costs through your monthly savings — your break-even point.
Understanding the Break-Even Point
Every refinance comes with closing costs — typically 2–5% of the loan amount — that you must pay (or roll into the loan) regardless of the new rate you receive. The break-even point is calculated by dividing those total closing costs by your monthly payment savings:
If your closing costs are $5,500 and you save $200 per month, your break-even is 27.5 months — just over two years. If you plan to stay in the home for at least that long, the refinance makes financial sense. If you plan to move sooner, you may not recoup the costs.
A break-even of under 24–36 months is generally considered excellent. Between 36–60 months is reasonable for most homeowners. Beyond 72 months, the savings are marginal and depend heavily on your specific situation and plans.
Rate-and-Term Refinance vs. Cash-Out Refinance
There are two primary types of refinance, and they serve very different purposes.
A rate-and-term refinance replaces your existing mortgage with a new one at a lower interest rate and/or different term. The loan balance stays roughly the same (closing costs aside). This is the most common type and the one our calculator above is designed for. The goal is simple: reduce your interest costs over the remaining life of the loan.
A cash-out refinance replaces your mortgage with a larger loan, allowing you to pocket the difference as cash. For example, if your home is worth $380,000, you owe $295,000, and you take out a new $330,000 mortgage, you'd receive roughly $35,000 in cash at closing (minus fees). This is often used for home improvements, debt consolidation, or major life expenses. Because you're borrowing more money, the interest costs are higher — but the cash accessed is typically at a much lower rate than a personal loan or credit card.
Understanding Closing Costs
Closing costs on a refinance typically range from 2% to 5% of the loan balance and can include:
- Origination fee: Lender's charge for processing the loan, usually 0.5–1% of the loan amount
- Appraisal fee: Required to verify your home's current value, typically $300–$600
- Title search and insurance: Protects the lender against title claims, usually $500–$1,500
- Credit report fee: Small fee ($25–$50) for pulling your credit
- Recording fees: Government fees for recording the new mortgage, varies by location
- Prepaid interest and escrow: You may need to prepay interest from your closing date to month end, plus fund a new escrow account
Some lenders offer "no-closing-cost" refinances, which typically means the costs are rolled into the loan balance or offset by a slightly higher interest rate. This can be attractive if you don't have the cash on hand, but you'll pay more over time.
Shortening vs. Lengthening Your Term
Refinancing to a shorter term — say, from a 30-year loan to a 15-year — can save a massive amount in total interest, even if the monthly payment increases. A 15-year mortgage typically carries a lower interest rate than a 30-year and you're paying for half the time. The trade-off is a higher monthly obligation, which reduces your financial flexibility.
Conversely, if you originally took a 15 or 20-year loan and are now cash-strapped, refinancing into a new 30-year mortgage can significantly lower your monthly payment — though you'll pay more total interest over the longer term. This can be a smart move if the improved cash flow outweighs the additional interest cost.
When NOT to Refinance
Not every refinance is a good idea, even when rates drop. Consider avoiding a refinance if: you're close to paying off your current loan (refinancing resets your amortization schedule, front-loading interest again); if your break-even point exceeds the time you plan to stay in the home; if you have prepayment penalties on your existing loan; or if your credit score has dropped significantly since your original loan, which may result in a rate that's not as competitive as you'd hoped.
Frequently Asked Questions
Refinancing typically costs 2–5% of your loan balance in closing costs. On a $295,000 loan, that works out to roughly $5,900–$14,750. Common charges include the lender's origination fee, appraisal, title work, and recording fees. You can negotiate some fees and shop lenders to reduce costs. A no-closing-cost refinance rolls these fees into your loan or rate instead of requiring upfront payment.
There is no universal answer — it depends on your loan balance, closing costs, and how long you plan to stay in the home. The "1% rule" is a common starting point, but a 0.5% rate drop on a large loan balance can generate meaningful savings. Use the calculator above to compute your actual break-even point. If you break even in under 24 months, refinancing is almost always worth considering.
Rolling closing costs into the loan means you don't need cash at closing, but you'll pay interest on those costs for the entire life of the loan. For example, rolling $5,500 into a 30-year loan at 6.1% means you'll ultimately pay about $11,800 for those fees — more than double. If you have the cash available, paying closing costs out of pocket is almost always cheaper in the long run. However, if you're tight on cash or plan to sell within a few years, rolling them in may be the more practical choice.
Applying for a refinance triggers a hard inquiry on your credit report, which may temporarily lower your score by a few points. However, this effect is typically minor and short-lived — credit scores usually recover within a few months. If you shop multiple lenders within a short window (typically 14–45 days depending on the scoring model), the multiple inquiries are often treated as a single inquiry to minimize impact. The long-term benefit of a lower payment generally outweighs this temporary dip for most borrowers.
Yes, it is possible to refinance with less than 20% equity, but you'll typically need to pay for private mortgage insurance (PMI) — or continue paying it if you already have it. Conventional lenders typically require at least 3–5% equity (or 95–97% LTV) to refinance. FHA, VA, and USDA streamline refinance programs exist specifically to help borrowers refinance with limited equity and minimal documentation. Your options improve significantly once you reach 20% equity, as PMI can be eliminated and you'll have access to the best conventional rates.