Find out if refinancing will save you money
Compare your current mortgage with a new rate and term. The calculator shows both monthly payments, the monthly saving, how long it takes to recover the closing costs, and the total interest you would pay under each loan, which is the number most refinance ads leave out.
The break-even point
Refinancing costs money upfront, commonly 2 to 5% of the loan. The break-even point is the closing costs divided by the monthly saving: the number of months before you are actually ahead. If you expect to sell or refinance again before then, the new loan loses money even though the payment is lower.
Watch the total interest, not just the payment
Say you owe 300,000 dollars at 7% with 27 years left, paying about 2,063 a month. A new 30-year loan at 6% drops the payment to about 1,799, saving 265 dollars a month, and with 6,000 dollars of closing costs you break even in about 23 months. But you have added three years of payments: total remaining interest falls only from about 368,600 to 347,500 dollars.
Choose a 25-year term at the same 6% instead and the payment is about 1,933, still 130 dollars lower than today, while total interest drops to about 279,900, a saving of almost 89,000 dollars. Matching the new term to the years you have left, or shortening it, is what makes a refinance pay off over the long run.
Other things to weigh
- No-closing-cost refinances are paid for with a higher rate or a larger loan. Compare them using the total interest figure.
- Cash-out refinancing turns home equity into new debt secured on your house. The calculator treats the new balance as entered.
- Discount points lower the rate in exchange for more cash upfront. Add them to closing costs to see whether you will stay long enough to benefit.
- PMI. If your home has gained value, a refinance can remove mortgage insurance, which adds to the monthly saving.
Estimates only, not financial advice. Compares principal and interest only. Taxes, insurance and lender fees beyond the closing costs you enter are not included.