About the Refinance Calculator
A rate drop of a single point on a mid-size mortgage is often a five-figure lifetime saving — but closing costs sit between you and the better rate, so the real question is not “is the new rate lower?” — it is “how long will the savings take to pay for the transaction, and will I still be in this home for that long?”
This tool computes the old monthly payment on the remaining term versus the new one, the monthly and lifetime savings, and the exact break-even month.
The formula behind it
Three comparisons run at once:
Old payment = balance at old rate over remaining term • New payment = balance at new rate over new term • Break-even months = closing costs / monthly savingsBoth payments use the standard annuity formula on the current balance. Lifetime comparison adds total interest paid under each path. The break-even month divides the one-time cost by the monthly difference.
Worked example
Defaults — a $260,000 balance refinanced from 7.0% (27 years left) to 6.0% for 30 years:
- Old payment ≈ $1,789/month; new payment ≈ $1,559/month.
- Monthly savings ≈ $229 against $4,800 of closing costs.
- Break-even ≈ month 20 — you must keep the loan (and typically the home) at least 20 months for the refinance to net a win.
Takeaway: Stretching the term back to 30 lowers the payment but resets the amortization clock — you will be paying “year 1” interest in year 3 on paper. Compare total interest too, not just the payment.
What moves the result
- Refinance goal — lowering payment and lowering lifetime interest are different targets; a shorter new term does the opposite of stretching.
- Closing costs — appraisal, origination, government fees; 2%–5% of balance is the typical band.
- How long you will stay — break-even must beat your realistic ownership horizon.
- Credit and equity — LTV above 80% may revive PMI in the new loan; the savings picture changes.
Practical tips
- Prefer a no-closing-cost refinance only after pricing: banked “free” refinances often price a slightly higher rate that costs more over the expected hold.
- A rate of 1 point lower is the usual red line for starting the conversation, though smaller gaps win for larger balances and inverted rate structures.
- Model the same monthly total (refinance and add extra principal) — you can capture payment relief in theory and interest savings in fact.
- Bonuses count toward break-even better than monthly amounts do; if closing costs are paid in cash, break-even is computed faster than with a financed deal.
- Set a calendar reminder at your break-even month with a “did we sell or refinance?” note — that turns refinance math into real savings.
Frequently asked questions
What is a break-even month exactly?
The number of months where cumulative monthly savings equals the total costs you paid at closing. Staying past it means the transaction has paid for itself.
Can I refinance to a shorter term and still save?
Often yes, though the payment rises. Compare total interest, not just the payment — the calculator shows both paths.
Are closing costs negotiable?
Some items are (title fees, lender origination). Shopping at least three lenders usually beats negotiating down one quote.