Refinancing replaces your current loan with a new one, usually to get a lower rate, a different term or both. The catch is that a new loan comes with closing costs, so the real question is how long it takes for the lower payment to earn those costs back — and whether resetting the clock on your loan costs you more in the long run. This calculator answers both.
How to use the refinance calculator
- Enter your current balance, current rate and time left on the loan, in years or months.
- Enter the new rate and new term you have been offered.
- Enter the total closing costs and tick the box if they will be added to the new loan rather than paid in cash.
- Read the break-even point on the tape, then compare both loans in the side-by-side table and the cumulative savings chart.
Break-even formula
The standard break-even measure compares the up-front cost with the monthly saving:
Both payments use the annuity formula M = P × r(1 + r)n ÷ [(1 + r)n − 1], where r is the monthly rate and n the remaining months. The calculator also tracks a second measure each month — cash saved so far plus the difference between the two loan balances — which captures equity and works even when the new payment is higher.
Worked example
You owe $250,000 at 7.25% with 27 years left. A lender offers 6.0% for 30 years with $5,000 in closing costs, paid in cash.
Current payment: $1,760.48. New payment: $1,498.88. Monthly savings: $261.61.
Break-even: 5,000 ÷ 261.61 = 19.1 → 20 months.
Lifetime: $570,397 left on the old loan vs. $539,595 + $5,000 on the new one — about $25,800 saved, even with three extra years of payments.
Comparing refinance options
Same balance and rate, different choices:
| Option | New payment | Break-even | Lifetime savings |
|---|---|---|---|
| 30 years, costs paid in cash | $1,498.88 | 20 months | $25,801.67 |
| 30 years, costs rolled in | $1,528.85 | 22 months | $20,009.76 |
| 20 years, costs paid in cash | $1,791.08 | 19 months (incl. equity) | $135,538.50 |
| 15 years, costs paid in cash | $2,109.64 | 18 months (incl. equity) | $185,661.57 |
The shorter terms raise the payment, so the simple formula never breaks even, yet they save far more because the balance falls quickly and far less interest accrues. That is why the calculator reports the equity-inclusive break-even when the payment goes up.
Things the numbers do not capture
How long you will keep the loan
If you expect to sell or refinance again before the break-even month, the closing costs are likely a net loss. Many homeowners move within ten years, so be realistic.
Cash-out and mortgage insurance
Taking cash out raises the new balance and is a different decision from a rate-and-term refinance. Removing or adding mortgage insurance, escrow changes and tax effects also shift the real saving.
Comparing offers fairly
Two offers with the same rate can carry very different fees, and lender credits can trade a higher rate for lower costs. Run each offer through the APR calculator to compare total borrowing costs on one scale. If the savings look thin, putting extra principal into your current loan — see the mortgage payoff calculator — may be the better move.
Estimates only. The calculation covers principal and interest; taxes, insurance and escrow are not included. Use your lenders' Loan Estimates for the exact costs of each offer.
Frequently asked questions
How do you calculate the refinance break-even point?
Divide the closing costs by the monthly payment savings. With $5,000 of costs and a payment that falls by $261.61, it takes 19.1 months, so the refinance pays for itself in the 20th month. If you sell or refinance again before then, the costs outweigh the savings.
Should closing costs be rolled into the new loan?
Rolling them in avoids paying cash at closing, but you then pay interest on those costs for the whole term and your monthly savings shrink. In the example on this page, rolling in $5,000 lowers the monthly savings from $261.61 to $231.63 and stretches break-even to 22 months.
Can a lower payment still cost more overall?
Yes. Resetting to a new 30-year term when you only had 27 years left spreads the balance over more payments. The monthly payment falls, but you make three extra years of payments, so always compare the lifetime cost as well as the payment.
Why does the calculator show a break-even that includes equity?
Payment savings ignore how fast each loan's balance falls. A shorter new term can raise your payment yet build equity much faster. Adding the difference in balances to the cash saved shows when you are genuinely ahead, which matters for 15- or 20-year refinances.
How much lower should the rate be before refinancing?
There is no fixed rule. What matters is whether you will keep the loan past the break-even point. A small rate drop with low costs can be worthwhile, while a bigger drop with high costs may not be if you plan to move within a few years.