How this calculator works
This calculator compares the remaining cost of your current loan with a possible refinance. You enter details for both sides: current remaining balance, current interest rate, years left on the current loan, and current monthly principal-and-interest payment; then new interest rate, new loan term, closing costs or refinance fees, and optional cash-out amount.
The new loan amount equals your current balance plus closing costs plus any cash-out you take. The calculator estimates a new fixed monthly payment using standard amortization on that amount at the new rate and term. Monthly savings is the difference between your current payment and the new payment.
Break-even estimates how long monthly savings take to recover closing costs. When monthly savings are positive and closing costs are greater than zero, break-even months equal closing costs divided by monthly savings, rounded up. When savings are positive but closing costs are zero, break-even is immediate. When the new payment is not lower, break-even is not reached.
Lifetime savings compares total payments on the remaining current loan against total payments on the new loan, adjusted so cash-out is not treated as a refinance fee. Total interest for each side is estimated from total paid minus the relevant loan balance. A break-even chart shows cumulative savings month by month after subtracting closing costs.
The comparison uses principal and interest only. It does not include property taxes, insurance, escrow, discount points, prepayment penalties, or adjustable-rate behavior. Your current payment input should match the P&I figure on your statement, not the full payment with escrow if those are combined on your bill.
What affects the result
Each input can change whether refinancing looks favorable on a monthly or lifetime basis.
- Current remaining balance sets the starting point for both the remaining cost of your existing loan and the base of the new loan before fees and cash-out.
- Current interest rate helps contextualize how much rate improvement you need, though the payment comparison relies primarily on your entered current payment and remaining term.
- Years left on current loan determines how many monthly payments remain on the existing loan and therefore total remaining cost at the current payment level.
- Current monthly payment should be principal and interest. An incorrect payment distorts monthly savings and break-even even if the balance and rates are accurate.
- New interest rate directly affects the new payment. A larger rate reduction produces more monthly savings and usually shortens break-even, holding other inputs constant.
- New loan term strongly affects both payment and lifetime cost. Resetting to a full 30-year term can lower the payment even when the rate drops only slightly, but it may increase total interest by extending the repayment timeline.
- Closing costs or refinance fees are added to the new loan balance in this model and reduce net savings until break-even is passed. Higher fees lengthen break-even.
- Cash-out amount increases the new loan balance and payment. The lifetime comparison subtracts cash received so borrowing cash for renovations or debt payoff is not counted as a fee, but it still adds interest over the new term.
Real-world examples
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Rate-and-term refinance with clear savings. Balance $320,000, current payment $2,050, 22 years remaining at 7.0%, refinancing to 6.0% on a 22-year new term with $4,800 closing costs and no cash-out. Monthly savings near $180 imply break-even around 27 months. If you plan to stay more than two years, the refinance may recover its costs; compare lifetime savings too.
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Lower payment, higher lifetime cost. Same $320,000 balance and 7.0% current rate, but you refinance into a new 30-year loan at 6.25% with $5,500 fees. The payment may drop noticeably, yet total interest can rise because you restart the clock. This scenario shows why monthly savings alone do not prove a good refinance.
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Cash-out for home improvements. $250,000 balance, $1,650 current payment, 18 years left, new 30-year loan at 6.5%, $6,000 closing costs, and $40,000 cash-out. The new payment rises versus a no-cash-out refinance because you borrow more. Evaluate whether the project value and interest cost are acceptable—not just whether the payment is lower than today.
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When break-even never arrives. If the new rate is only slightly below the current rate but you roll $8,000 in fees into the loan and extend the term modestly, monthly savings may be small or negative. Break-even may fall beyond your planned ownership horizon, signaling that waiting for a better offer or paying costs upfront differently may make more sense.
Common mistakes
- Entering the full mortgage payment with escrow as the current payment. Escrow for taxes and insurance is not part of this P&I comparison and will skew savings.
- Ignoring term extension. A lower payment from a fresh 30-year loan can mask thousands in added lifetime interest.
- Expecting break-even to tell the whole story. If you plan to sell in 3 years, a 5-year break-even means you may never recoup fees even when the payment drops.
- Treating cash-out as free money. It increases the balance and interest cost; the calculator adjusts lifetime math but cannot judge whether the use of funds is wise.
- Assuming closing costs always roll into the loan. Paying fees upfront changes break-even math because they are not financed in every scenario—here they are added to the new balance by default.
- Comparing only the rate drop. Credit score changes, appraised value, and loan type (FHA to conventional, removing PMI) also affect whether refinancing makes sense.
When to use this calculator
Use this calculator when you have a concrete refinance quote or a realistic scenario to test against your current loan. It fits rate-and-term refinances and cash-out refinances where you want estimated payment change, break-even timing, and lifetime cost comparison in one place.
Run it when rates fall 0.5 to 1.0 percentage point below your current note rate, when your credit has improved since you bought, or when you consider removing PMI through a new conventional loan. Use the what-if rate drop section to see how waiting for a slightly better rate might change break-even—though waiting carries its own cost in missed savings.
Switch to the loan and mortgage payment calculator for a new purchase without an existing loan to compare. Use the home affordability calculator if you are buying rather than refinancing. For a line of credit against equity without replacing the first mortgage, try the HELOC calculator instead. If you are also comparing vehicle or personal borrowing, see the auto loan calculator.
Related calculators
Model principal and interest on a specific loan amount with the loan and mortgage payment calculator. Set a purchase budget from income using the home affordability calculator. Compare a line of credit against a full refinance with the HELOC calculator. If you are consolidating unsecured debt through cash-out, weigh the new payment against a personal loan calculator scenario before increasing your mortgage balance.
FAQ
What is the break-even month?
The break-even month estimates how many months of payment savings it takes to recover refinance closing costs and points. It divides total upfront costs by monthly savings and rounds up when savings are positive. If the new payment is not lower than the current payment, break-even is not reached.
How does expected time in the home affect the decision?
If you enter expected years staying in the home, the calculator compares break-even timing with your planned stay. When break-even comes after you expect to move or pay off the loan, you may not recover closing costs even if the monthly payment drops.
Should closing costs be financed into the new loan?
Financing closing costs increases the loan balance and new payment but avoids paying fees out of pocket today. Paying costs upfront keeps the balance lower. Break-even uses total closing costs either way; financing changes how much interest you pay over time on those fees.
Does the calculator include cash-out refinancing?
Yes. Cash-out increases the new loan balance by the amount you borrow beyond the payoff of the old loan plus fees. The new payment reflects that larger balance. Lifetime savings subtract cash received so the comparison focuses on the refinance tradeoff.
Does this include taxes, insurance, or escrow?
No. The comparison uses principal-and-interest payments, closing costs, points, and cash-out only. Property taxes, homeowners insurance, mortgage insurance, and escrow are not modeled. Enter your current P&I payment—not the full bill if escrow is included.
Should I refinance if the monthly payment is lower?
Not always. A lower payment can still cost more over the life of the loan if you extend the term significantly or finance large closing costs. Compare break-even timing with how long you expect to keep the loan, and read lifetime savings alongside the monthly figure.
What if I plan to move before the break-even month?
If you sell or pay off the loan before monthly savings recover closing costs, you may not net a financial benefit even though each payment is lower. Break-even matters most when you expect to keep the new loan long enough to pass that point.
How are discount points handled?
Enter discount points as a dollar cost added to closing costs for break-even purposes. Points may lower your rate; this calculator does not model rate buydown separately—you enter the resulting new rate and points cost together.
What does lifetime savings mean?
Lifetime savings compares total remaining payments on the current loan with total payments on the new loan, adjusting for cash-out proceeds. A positive number suggests the refinance may cost less overall if you keep the loan to completion; a negative number suggests higher lifetime cost even if the monthly payment drops.
What are the main limitations?
This tool assumes fixed rates, does not model ARMs, PMI changes, lender credits, or prepayment penalties. It does not account for tax deduction changes or investment opportunity cost of paying fees upfront. Use results for planning and verify with an official loan estimate.