Refinance Calculator:
is it worth it?

Field guide

What is mortgage refinancing?

Refinancing a mortgage means replacing your current home loan with a new one, typically to secure a lower interest rate, change the loan term, switch from an adjustable-rate to a fixed-rate mortgage, or access home equity through a cash-out refinance. The new lender pays off your old loan; you then make payments on the new one.

The core trade-off is simple: you pay closing costs today to reduce your ongoing costs over the remaining life of the loan. Whether that trade-off is favorable depends almost entirely on three numbers: how much the rate drops, what closing costs you’ll pay, and how long you plan to keep the loan.

The break-even point: the most important metric.

The break-even point is the number of months it takes for your cumulative monthly savings to equal the closing costs you paid upfront. Before that month, you’re behind (you paid the fees but haven’t saved enough yet). After that month, every dollar of reduced interest is pure net savings.

Example: Closing costs of $6,000 and monthly savings of $360 → break-even in 16.7 months, call it 17. If you plan to stay in the home for at least 17 months after the refinance closes, the refinance makes financial sense. If you’re likely to move or sell in 12 months, it doesn’t.

This calculator computes the exact break-even by walking both amortisation schedules month by month, the same approach lenders and financial planners use. It accounts for the fact that early monthly payments are interest-heavy, so the savings rate actually changes slightly each month.

When does refinancing make sense?

There is no universal answer, but these conditions generally favour refinancing:

• Rate drops by 0.5–1% or more. The old “1% rule” (only refinance if the rate drops 1%) is a useful starting heuristic but not a hard rule. At large loan balances, even a 0.5% reduction can generate meaningful savings; at smaller balances, you may need a 1.5% drop to clear closing costs. Run the numbers; don’t rely on rules of thumb.
• You plan to stay past the break-even. If you expect to sell or fully pay off the home before recouping closing costs, the refinance costs you money. The longer you stay past break-even, the more the refinance benefits you.
• Your credit score has improved significantly. If your score has jumped 40+ points since origination, you may now qualify for rates that weren’t available to you before.
• Switching from ARM to fixed. If an adjustable-rate period is about to end and rates are rising, a refinance into a fixed-rate loan locks in predictability, even at a slightly higher rate.
• Shortening the term. Refinancing from a 30-year to a 15-year loan at a lower rate can save an enormous amount of interest, even if the monthly payment rises. The total cost of the loan drops dramatically.

When refinancing probably doesn’t make sense.

• You’re deep into the loan. A fixed-rate amortisation schedule is front-loaded with interest. If you’ve paid 22 years on a 30-year loan, most of each remaining payment is principal. Restarting the clock with a new 30-year loan restores that interest-heavy early schedule, and you’ll pay far more total interest even at a lower rate.
• The break-even is longer than your stay. If you plan to sell in two years and the break-even is 36 months, skip it.
• Closing costs are unusually high. Some lenders advertise “no-closing-cost” refinances; they simply roll the fees into the rate or add them to the balance. Model the real cost of both options.
• You have a prepayment penalty. Older or non-conforming loans may carry prepayment penalties for the first few years. Always read the note before you refinance.

What are typical refinance closing costs?

Closing costs typically run 2–5% of the loan balance. On a $300,000 loan, that’s $6,000–$15,000. The main components are:

• Origination fee: 0.5–1% of the loan, charged by the lender for processing the new mortgage.
• Discount points (optional): Prepaid interest to buy a lower rate. Each point = 1% of the loan = ~0.25% off the rate. Only worth it if you stay long enough to recoup the cost.
• Appraisal fee: $300–$700, required by most lenders to confirm the home’s current value.
• Title search and insurance: $500–$1,500, to confirm clear title for the new loan.
• Government recording fees: Varies by county; typically $50–$250.
• Prepaid items: Homeowners insurance, property tax escrow, and prepaid interest from close date to first payment date.

Shop at least three lenders. Fees vary widely, and a competing Loan Estimate (the standardised disclosure all lenders must provide) is the most effective negotiating tool you have.

Rate-and-term vs. cash-out refinance.

This calculator models a rate-and-term refinance: the same loan balance at a new rate and/or term, with no cash extracted. That’s the most common type and the one where the math is cleanest.

A cash-out refinance increases the loan balance above the current payoff amount, giving you the difference in cash. The calculation is the same in structure but the “new balance” is larger. To model cash-out, simply enter the new, larger balance (current balance + cash you want) as the balance in this calculator and run the comparison as normal.

Be cautious with cash-out: you’re converting home equity (a long-term asset) into cash, and extending or resetting the amortisation clock. The interest rate on a cash-out refinance is also typically 0.125–0.375% higher than a rate-and-term refi because lenders consider it slightly riskier.

The impact of term length

Shortening the term (e.g. 30-year to 15-year) at a lower rate is the highest-value refinance for total lifetime savings. A 15-year mortgage typically carries a rate 0.5–0.75% lower than a 30-year. Combined with the shorter accrual period, total interest can be cut by 60–65%. The downside: the monthly payment rises. Use the term preset buttons in the calculator to compare 15-year vs. 30-year at your specific rate.

Lengthening the term (e.g. you have 20 years left, you refinance into a new 30-year) lowers the monthly payment but increases total interest paid, sometimes dramatically. The calculator will show a negative “interest savings” figure in that scenario — a clear signal that the long-term cost is higher even if monthly cash flow is better.

How this calculator works

Both loan scenarios are simulated month by month using the standard fixed-rate amortisation formula. For each month, interest accrues on the outstanding balance; the fixed payment is split into interest and principal; the balance is reduced by the principal portion. The process repeats until the balance reaches zero.

The break-even is detected at the first month where cumulative interest paid on the current loan exceeds closing costs plus cumulative interest on the new loan. The chart traces both cumulative costs year by year; the intersection of the two lines is the break-even point.

Caveats and disclaimer

This calculator models principal-and-interest only. Property taxes and homeowners insurance (the “TI” in PITI) are not affected by refinancing and are excluded. Private mortgage insurance (PMI) may drop off if the refinance brings your loan-to-value below 80%, which would add to your effective savings; model that separately.

Rates shown are for illustration. Actual refinance rates depend on your credit profile, loan-to-value ratio, loan type, and market conditions at the time of application. This tool is for planning purposes and does not constitute financial or lending advice. Consult a licensed mortgage professional for binding quotes.