Refinance

Comparing Your Current Loan Against a Refinance Offer

Refinancing replaces your current loan with a new one, usually to get a lower interest rate, a different term, or both. Enter your current loan’s remaining balance, rate, and years left, along with the new rate and term you’re being offered, and this calculator compares your monthly payment and lifetime interest under both loans — plus, if you add any closing costs, how long it takes for the monthly savings to pay those costs back.

A lower rate doesn’t automatically mean refinancing is worth it. Resetting the clock on a new 30-year term can lower your monthly payment while increasing the total interest you pay over the life of the loan, since you’re paying interest for longer. This calculator shows both the monthly cash-flow picture and the lifetime-interest picture side by side, since they can point in different directions.

The Formula

Both the current and new monthly payments use the standard fixed-rate amortization formula:

$$M = \vA{P} \times \frac{\vB{r}(1+\vB{r})^{\vC{n}}}{(1+\vB{r})^{\vC{n}} - 1}$$

where $\vB{r}$ is the monthly interest rate (annual rate ÷ 12) and $\vC{n}$ is the number of monthly payments remaining.

$$\vE{\text{Monthly Savings}} = \text{Current Payment} - \text{New Payment}$$ $$\text{Break-Even Months} = \frac{\vD{\text{Closing Costs}}}{\vE{\text{Monthly Savings}}}$$

Only when there are actual monthly savings to recoup costs with.

$$\text{Lifetime Interest Savings} = \text{Current Loan's Remaining Total Interest} - \text{New Loan's Total Interest}$$

This calculator assumes closing costs are paid out of pocket rather than rolled into the new loan balance — rolling them in would change the new payment itself, so keeping them separate keeps the break-even math exact for what you actually spend up front.

Worked Example

A $300,000 balance with 25 years remaining at 7%, refinancing into a new 30-year loan at 5.5%, with $4,000 in closing costs:

1. Current monthly payment (at 7%, 25 years left): about $2,120.
2. New monthly payment (at 5.5%, 30 years): about $1,703.
3. Monthly savings: about $417.
4. Break-even on the $4,000 closing costs: about 10 months.
5. Because the new term resets to 30 years (5 years longer than the 25 remaining), the lifetime interest comparison depends heavily on the rate drop — check your own numbers above, since a longer term can offset some or all of a lower rate’s savings.

Key Factors to Consider

• A cash-out refinance changes the math differently than a standard rate-and-term refinance. Borrowing additional cash against home equity as part of the refinance increases the new loan balance beyond simply replacing the old one — this calculator’s break-even and lifetime-interest comparison assumes a straightforward rate-and-term refinance, not one where the new loan amount is larger than the old balance.
• Closing costs on a refinance often include many of the same fee categories as the original purchase. Origination fees, appraisal, title insurance, and other closing costs can add up to several percent of the loan amount — some lenders offer a “no-closing-cost” refinance that folds these costs into a slightly higher rate instead, a different tradeoff from paying them upfront.
• How long you plan to stay in the home matters as much as the break-even math itself. A refinance with a 10-month break-even point is a much easier decision for someone planning to stay for years than for someone who might sell or move within that same window — the break-even period is only valuable information once weighed against how long the new loan will actually be held.
• PMI status can change as part of a refinance, in either direction. If home value has risen enough to eliminate PMI on a refinance, or conversely if a cash-out refinance pushes loan-to-value back above 80%, PMI may newly apply — worth checking alongside the rate and payment comparison, since PMI wasn’t part of the standard formula above.

Common Mistakes

• Only looking at the monthly payment drop. A lower monthly payment can still cost more in total interest if the new term resets to a longer payoff period — check the lifetime interest comparison, not just the monthly savings, before deciding.
• Ignoring closing costs when judging whether refinancing is worth it. A lower rate isn’t automatically a win if closing costs take years to break even on — especially if there’s a real chance of moving or selling before that point.
• Assuming the new term has to match the old loan’s original term. Refinancing into a shorter term than the remaining balance’s original schedule can save substantial interest even at a similar rate — it’s a genuinely separate lever from the interest rate itself.

Useful to Know

• Curious what your remaining balance and payoff timeline look like if you DON’T refinance and instead just pay extra toward your current loan? Mortgage Payoff Calculator models that alternative.
• Considering borrowing against your home’s equity instead of a full refinance? Home Equity / HELOC Calculator estimates how much you could borrow and at what payment.
• Want the true annual cost of the new loan, folding in the closing costs this calculator treats separately? Annual Percentage Rate (APR) Calculator converts a rate-plus-fees loan into a single comparable APR figure.