How the refinance calculator works
Refinancing replaces your current mortgage with a new one, ideally at a lower rate. The calculator computes the principal-and-interest payment on your remaining balance under both the old terms and the new terms. The difference is your monthly savings. Dividing the closing costs by that saving gives the break-even point: the number of months you must keep the new loan before the refinance has paid for itself.
The formula
Each payment uses the amortization formula M = P × r / (1 − (1 + r)−n). Break-even months = closing costs ÷ (old payment − new payment). Lifetime savings compare every remaining payment on the old loan against every payment on the new loan plus closing costs.
Example
You owe $250,000 at 7% with 30 years left, so you pay about $1,663 a month. Refinancing into a new 30-year loan at 6% drops the payment to about $1,499 — a saving of roughly $164 a month. With $5,000 in closing costs you break even after about 31 months. If you plan to stay in the home longer than that, the refinance likely makes sense.
Watch the loan term
Resetting to a fresh 30-year term can lower your payment even when it raises the total interest you pay, because you stretch the debt over more years. The lifetime figure in the results shows this trade-off clearly. Choosing a shorter new term often keeps the payment similar while saving a large amount of interest.
Frequently asked questions
How much lower should my rate be to refinance?
There is no fixed rule. What matters is whether your monthly savings recover the closing costs before you expect to sell or refinance again. Many borrowers look for a drop of at least 0.5 to 1 percentage point.
What are typical refinance closing costs?
Closing costs often run 2% to 5% of the loan amount and include appraisal, title, origination and recording fees. Ask lenders for a Loan Estimate to compare exact costs.
Can I roll closing costs into the loan?
Often yes, but you then pay interest on those costs. A "no-closing-cost" refinance usually means a slightly higher rate instead.
Does refinancing hurt my credit?
A hard credit inquiry and a new account can lower your score slightly for a short time. Rate shopping within a short window is usually counted as a single inquiry.
Results are estimates for educational purposes only and are not financial, tax, legal or medical advice. See our disclaimer. Last reviewed 2026-10-22.