The refinance calculator can help plan the refinancing of a loan given various situations, and also allows the side-by-side comparison of the existing or refinanced loan.
A refinance calculator helps homeowners evaluate whether replacing their current mortgage with a new loan makes financial sense. It takes the key variables of both the existing loan and the proposed new loan and computes three critical outputs: the change in monthly payment, the break-even point (how many months it takes for cumulative savings to recover the closing costs), and the lifetime interest savings or cost.
This calculator also computes the true Annual Percentage Rate (APR) of the new loan - factoring in points and fees - so you can make an apples-to-apples comparison against your current rate. The side-by-side comparison table shows principal balance, monthly payment, loan length, interest rate/APR, total payments, and total interest for both the current and proposed loan.
Refinancing means taking out a new mortgage loan to pay off and replace your existing one. The new loan can have a different interest rate, a different term (length), or both. When you refinance, your lender pays off your old mortgage and you begin making payments on the new one under the new terms.
Because a home is collateral for the mortgage, the equity you have accumulated - the difference between your home's current market value and what you still owe - can influence both your ability to refinance and the terms available to you. Borrowers with more equity generally qualify for better rates and have additional options, including cash-out refinancing.
The most common reason to refinance is to reduce the interest rate on the mortgage. When market rates fall below what you are currently paying - or when your credit score has improved enough to qualify for a better rate than you received originally - refinancing can reduce monthly payments and dramatically reduce total interest paid over the life of the loan. Even a 0.5% rate reduction on a $300,000 mortgage saves approximately $90/month and over $32,000 in total interest over a 30-year term.
Refinancing to a lower rate, a longer term, or both will reduce the monthly payment - freeing up cash flow for other expenses, savings, or investments. This can be particularly valuable during periods of financial stress. The tradeoff: extending a loan term (e.g., resetting a 22-year remaining mortgage back to 30 years) reduces the payment but increases the total interest paid over the life of the loan.
Some homeowners refinance from a 30-year mortgage into a 15-year mortgage to pay off the home faster and reduce the total interest cost significantly. A 15-year mortgage typically carries a lower interest rate than a 30-year loan (often 0.5–0.75% lower), and because the principal is repaid in half the time, the total interest paid is dramatically less - even though the monthly payment is higher. This strategy makes the most sense for homeowners whose income has grown substantially since they took out their original loan.
A cash-out refinance allows you to borrow more than you currently owe and receive the difference in cash. If you owe $200,000 on a home worth $350,000, you might refinance into a new $260,000 loan and receive $60,000 in cash (subject to lender requirements). This converts home equity into liquid funds for home improvements, debt consolidation, education expenses, or other major needs. The tradeoff is a higher loan balance and therefore a higher monthly payment and more total interest.
Homeowners with an adjustable-rate mortgage (ARM) may refinance into a fixed-rate mortgage to eliminate interest rate uncertainty. ARMs typically start with a lower rate that is fixed for an initial period (3, 5, 7, or 10 years), then adjust annually based on a market index. If rates are rising - or if the homeowner plans to stay in the home long-term - locking in a fixed rate eliminates the risk of a dramatically higher payment at adjustment time. Conversely, a homeowner planning to sell within 5 years might refinance from a fixed into an ARM to capture a lower initial rate.
Borrowers who purchased with less than 20% down using an FHA loan are required to pay mortgage insurance premiums (MIP) for the life of the loan regardless of how much equity they accumulate. Once the home has appreciated (or the balance has been paid down) to the point where the loan-to-value ratio is 80% or below, refinancing into a conventional loan eliminates the MIP - which can save $100–$300 per month on many loans.
The most straightforward type: you refinance the remaining balance for a different interest rate, a different term, or both. The loan amount stays approximately the same (it may increase slightly if closing costs are rolled into the new loan). This is the right choice when the primary goal is to reduce monthly payments or total interest without tapping equity.
The new loan balance is higher than the existing balance. The difference is paid to the borrower in cash at closing. Lenders typically require the borrower to retain at least 20% equity after the cash-out (i.e., the loan-to-value ratio cannot exceed 80% for conventional loans, though FHA and VA cash-out programs have different thresholds). Interest rates on cash-out refinances are often 0.125–0.5% higher than rate-and-term refinances because of the higher risk to the lender.
Less common but useful in specific situations: the borrower brings cash to closing to pay down the loan balance as part of the refinance. This can help a homeowner who is underwater (owes more than the home is worth) qualify for a better rate, or allow a borrower to hit the 80% LTV threshold and avoid PMI on the new loan.
Government-backed loans (FHA, VA, USDA) offer streamlined refinance programs that reduce the documentation and underwriting requirements. An FHA Streamline Refinance, for example, does not require a new appraisal or income verification - making it faster and cheaper than a conventional refinance. However, the borrower must already have the same type of government-backed loan and must generally demonstrate a "net tangible benefit" (lower rate or payment).
The break-even point is the number of months it takes for cumulative monthly savings from the lower payment to equal the total upfront closing costs. It is the single most important metric for deciding whether to refinance.
Break-Even Formula: Break-Even Months = Total Closing Costs ÷ Monthly Payment Savings
Worked example:
In this case, you would need to stay in the home for at least 8 years to come out ahead on the refinance. If you plan to sell or move within 5 years, the refinance would cost you money overall despite the lower rate.
This calculator uses a more precise break-even method: it tracks cumulative interest savings month by month (accounting for the fact that as both balances decline, the interest differential changes) and identifies the exact month when those cumulative savings exceed the total upfront costs. This is more accurate than the simple division formula, particularly when the rate difference is large or the term changes significantly.
Refinancing is not free. Closing costs typically range from 2% to 5% of the loan amount. On a $300,000 refinance, that's $6,000–$15,000 in upfront costs. Common fees include:
| Fee Type | Typical Cost | Description |
|---|---|---|
| Origination fee | 0.5–1% of loan | Lender's charge for processing the loan |
| Discount points | 1% of loan per point | Prepaid interest to buy down the rate |
| Appraisal | $300–$600 | Third-party home value assessment |
| Title search & insurance | $400–$900 | Confirms clear ownership; insures lender |
| Application fee | $75–$300 | Processing and credit check |
| Document preparation | $100–$400 | Preparation of closing documents |
| Recording fee | $25–$250 | Government fee to record the new mortgage |
| Survey | $150–$400 | Confirms property boundaries (not always required) |
| Attorney/settlement fee | $500–$1,000 | Required in some states |
"No closing cost" refinances exist but are not free - costs are either rolled into the loan balance (increasing what you owe) or offset by a higher interest rate (a "lender credit"). Both approaches delay or eliminate the break-even benefit, making no-cost refinances best suited for homeowners who plan to sell or refinance again within a few years.
Discount points (also called mortgage points) are prepaid interest. Each point costs 1% of the loan amount and typically reduces the interest rate by approximately 0.25% (though this varies by lender and market conditions). Paying points makes sense only if you will stay in the home long enough to recoup the upfront cost through interest savings.
Example: On a $300,000 loan, 2 points cost $6,000 and might reduce the rate from 7.0% to 6.5%. The monthly payment drops from $1,996 to $1,896 - saving $100/month. Break-even: $6,000 ÷ $100 = 60 months (5 years). If you stay longer than 5 years, the points pay off. The calculator's APR computation factors in points alongside other closing costs to show the true cost of the loan.
A critical and often overlooked consequence of refinancing: every new loan restarts the amortization schedule. In the early years of any mortgage, the vast majority of each payment goes toward interest rather than principal. When you refinance into a new 30-year loan after already paying for 8 years on your original 30-year mortgage, you reset to a position where again most of each payment is interest.
Why this matters: A homeowner who is 8 years into a 30-year mortgage at 7% has already built up significant equity via amortization. Refinancing into another 30-year loan (now at 6%) reduces the monthly payment but means paying interest for a total of 38 years instead of 30 - potentially eliminating the lifetime interest savings even if the rate is lower.
Solutions to the amortization restart problem:
The interest rate is the cost of borrowing the principal - it determines your monthly payment. The Annual Percentage Rate (APR) includes the interest rate plus all financed costs (points, origination fees) spread over the loan term, expressed as a single annual percentage. The APR is always at or above the nominal interest rate.
When comparing two refinance offers with different fee structures, APR is the more meaningful comparison metric because it captures total cost. An offer with a lower interest rate but very high points/fees may have a higher APR than an offer with a slightly higher rate but minimal fees - meaning the first offer is actually more expensive over the full loan term despite the lower headline rate.
This calculator computes the new loan's APR using Newton's method on the loan cash flows (accounting for net proceeds after fees), giving you an accurate true-cost figure to compare directly against your current loan's interest rate.
The old rule of thumb was "at least 2% lower," but that's outdated. The right threshold depends on your loan balance, closing costs, and how long you plan to stay. On a large loan balance, even a 0.5% reduction can justify refinancing if closing costs are modest and you plan to stay 5+ years. Use the break-even calculation as your real guide: if your break-even is well within your planned time in the home, the refinance makes sense regardless of whether the rate drop meets a particular threshold.
Most conventional lenders require a minimum credit score of 620 to refinance, but the best rates are reserved for borrowers with scores of 740 or higher. FHA refinances can be done with scores as low as 580. A higher score doesn't just affect whether you qualify - it significantly affects the rate you're offered. Improving your score from 680 to 740 before refinancing can reduce your rate by 0.25–0.5%, which translates to real savings over the life of the loan.
Yes. Every new loan begins a fresh amortization schedule where early payments are heavily weighted toward interest. If you are several years into a 30-year mortgage and refinance into another 30-year loan, you effectively extend your total mortgage duration. The solution is to refinance into a loan term that matches or is shorter than your remaining term - for example, refinancing your 22 remaining years into a 20-year or 15-year loan. This preserves or accelerates your payoff timeline.
Yes, most lenders allow you to roll closing costs into the new loan balance rather than paying them out of pocket at closing. This eliminates the immediate cash outlay but increases your loan balance and therefore the amount on which you pay interest. Rolling in $6,000 of closing costs on a $280,000 balance at 6.5% over 25 years adds approximately $13,000 in total interest over the life of the loan. The break-even calculation in this calculator treats closing costs as an upfront cost regardless of whether they are paid out-of-pocket or financed.
Both allow you to tap home equity, but they work differently. A cash-out refinance replaces your existing mortgage with a single, larger fixed-rate loan - one payment, one lender, one interest rate. A HELOC (Home Equity Line of Credit) is a separate revolving credit line in addition to your existing mortgage - leaving your primary mortgage intact. Cash-out refinancing makes more sense when rates have dropped below your current mortgage rate, because you're refinancing your whole balance anyway. A HELOC is better when you want to keep your existing low-rate mortgage and only need to access equity separately.
A conventional refinance typically takes 30–60 days from application to closing. The main stages are: application and document submission (1 week), underwriting and appraisal (2–4 weeks), final approval and closing disclosure (1 week), and closing (1 day). Streamline refinances for FHA, VA, and USDA loans can close faster - sometimes in 2–3 weeks - because they require less documentation. Rate locks typically last 30–60 days; if the process runs long, you may need to pay a lock extension fee.
Your existing escrow account - which holds funds for property taxes and homeowners insurance - will be closed when your old mortgage is paid off. The balance in the account is typically refunded to you within 30 days of closing. Your new lender will establish a new escrow account, which usually requires an upfront deposit (commonly 2–3 months of taxes and insurance). This escrow setup can add several hundred to a few thousand dollars to your upfront costs, which is why it's important to include all costs - not just lender fees - in the break-even calculation.
Only if the break-even point is less than 3 years. Calculate your exact break-even using this calculator - if closing costs are low and the monthly savings are meaningful, a short break-even (say, 18–24 months) can make refinancing worthwhile even with a near-term sale planned. If the break-even is 4+ years, the refinance will cost you money on net. No-closing-cost refinances (where costs are offset by a slightly higher rate) can be worth considering in this scenario since they eliminate the break-even hurdle.