MORTGAGE
Refinancing replaces your current mortgage with a new one, usually for a lower interest rate. This calculator shows your new payment, your monthly saving, the break-even point on the closing costs, and whether you come out ahead overall.
Enter your current loan and the new offer to compare the payments and the total interest.
Results are estimates for educational purposes only. They are based on the numbers you enter and are not financial advice.
Say you owe $280,000 at 7.25%, with 27 years left on the loan. Your current monthly payment is $1,971.74, and if you keep this loan you will pay $358,844.79 in interest over the remaining term.
A lender offers you 6% on a new 30 year loan, with closing costs of $5,500. The new monthly payment is $1,678.74, which saves you $293.00 a month. Dividing the $5,500 of closing costs by that $293.00 monthly saving gives a break-even point of 18.8 months. From that month onwards, the refinance leaves you ahead. The new loan carries $324,346.93 of total interest, so once the closing costs come off, the net saving is $28,997.86.
One caution sits inside those figures. The new 30 year term restarts the clock, which is why the total interest matters as much as the monthly saving. The lower rate wins clearly in this example, but if you planned to move before month 19, the closing costs would never be earned back and the refinance would lose money. The Consumer Financial Protection Bureau offers free guides for home buyers and borrowers.
Refinancing swaps the remaining balance of your current loan onto a new interest rate and a new term. The calculator works out the monthly payment for the years left on your current loan and for the new loan on the same balance, using the standard monthly payment formula.
The saving arrives month by month through the lower payment, so the closing costs must first be earned back. Dividing the closing costs by the monthly saving gives the break-even point: the month from which the refinance starts to leave you ahead.
Stretching the loan back out to a full new term lowers the monthly payment, but it can also raise the total interest you pay over the life of the loan. That is why this calculator compares the total interest on both loans, not just the monthly payment, and shows the net saving after the closing costs have been taken off.
Refinancing makes sense when the new rate cuts your payment enough to repay the closing costs before you expect to move or refinance again, and when the total interest you pay falls as well.
Refinance closing costs typically come to 2 to 5% of the loan amount, similar to the costs on the original purchase. They cover items such as the lender fee, valuation and legal work.
Yes. A new 30-year loan restarts the clock, which is why the total interest matters so much. Choosing a shorter new term keeps more of the benefit of the lower rate.
Yes. A cash-out refinance borrows more than your current balance and pays you the difference in cash, at the cost of a bigger loan and a higher monthly payment.