Will refinancing actually save you money?

How a mortgage refinance works

A mortgage refinance replaces your existing home loan with a new one, usually at a lower interest rate, a different term or both. The new loan pays off the old balance, and you start making payments under the new terms. Homeowners refinance to cut their monthly payment, pay the loan off sooner, switch from an adjustable to a fixed rate, or release equity as cash.

Our refinance calculator uses the standard amortization formula. It works out the payment on your current loan and on the new loan, subtracts one from the other, then divides your closing costs by the monthly saving to find your break-even point.

What is the break-even point?

The break-even point is the number of months it takes for monthly savings to cover the cost of refinancing. If closing costs are 6,000 and you save 200 a month, you break even in 30 months. If you expect to move or sell before then, refinancing will probably cost you more than it saves.

When does refinancing make sense?

• Your new rate is meaningfully lower than your current rate, often cited as 0.5 to 1 percentage point.
• You plan to stay in the home well beyond the break-even point.
• Your credit score or home value has improved since you took the original loan.
• You want to drop mortgage insurance or move to a fixed rate.

Costs to include

Typical refinance costs include the lender's origination fee, appraisal, title search and insurance, credit report, recording fees and prepaid items. Together they commonly run between 2% and 5% of the loan amount. Enter the total in the calculator for an honest result.

Shorter term or lower payment?

Moving from a 30-year to a 15-year loan raises your monthly payment but can save a very large amount of interest. Extending the term lowers your payment but may increase total interest. Change the new loan term above to compare both choices using the lifetime savings figure.

Reset your loan clock carefully

If you are ten years into a 30-year loan and refinance into a new 30-year loan, you add ten years of payments. Enter the real remaining years in the calculator so the comparison is fair.

Refinance FAQs

How accurate is this refinance calculator?

It uses the same formula lenders use for fixed-rate loans. Taxes, insurance and rate changes are not included, so treat results as a close estimate and confirm with a loan estimate.

How much does it cost to refinance a mortgage?

Most borrowers pay about 2% to 5% of the loan amount in closing costs. Compare quotes from several lenders.

Does refinancing hurt my credit score?

A lender's credit check causes a small, temporary dip. Multiple mortgage inquiries within a short window are usually counted as one.

Can I roll closing costs into the new loan?

Many lenders allow it, but you pay interest on those costs. To model it, add the costs to your balance and enter zero closing costs.

How soon can I refinance again?

Rules vary by lender and loan type. Some require several months of payments first. Ask your lender about seasoning periods.