Should I Refinance? Break-Even Calculator
A lower rate lowers your payment. Whether it lowers what the loan costs you is a different question, because a refinance usually restarts the term. Compare keeping your loan, refinancing, and refinancing while keeping your old payment.
Your numbers
From your latest mortgage statement
From your Loan Estimate, if you have one
Blank means 30 years
Your numbers stay in this browser. Nothing is sent anywhere unless you save a scenario to your account.
Add your current loan balance, current rate, years left on the loan and new rate you could get and your answer appears here.
How to Use This Refinance Calculator
- 1.Enter your current balance, rate, and years left, plus the rate you have been offered — or tap today’s average to use it.
- 2.Add your closing costs from your Loan Estimate. If you leave it blank, 2% of the balance is assumed and the answer says so. Set the new term to match the years you have left if you don’t want to restart the clock.
- 3.Read the break-even and the lifetime cost — if you will stay past the break-even, the refinance pays. The last option shows what happens if you refinance but keep paying your old payment.
Why a Lower Rate Is Not Automatically Cheaper
The term resets
Three years into a thirty-year mortgage you have 27 years left. Refinancing into a new thirty-year loan gives you back the three years you already served, at a lower rate but over a longer run. Those extra payments are almost all interest in the early years, which is why a full percentage point of relief can produce a surprisingly small improvement in lifetime cost.
You are further up the curve than you think
Amortization front-loads interest. By year three you have paid down very little principal but have already absorbed a large share of the interest on those years. Restarting means paying the front of the curve twice. The way to avoid it is to refinance into a shorter term, or to keep the payment where it was and let the difference go to principal.
Keeping the old payment is the whole trick
The third scenario refinances at the lower rate but leaves the household budget exactly as it was, sending the freed-up amount to principal every month. It costs nothing more than doing nothing, and it converts the rate drop into term reduction rather than cash flow. On this loan it is worth well over $100,000 compared with keeping the original mortgage.
Frequently Asked Questions
Is it worth refinancing to save 1%?
Usually yes on the monthly payment, and not automatically on the total cost. Take a full point as a worked example: dropping from 7% to 6% on the loan modelled here cuts the payment by around $256 a month, which is real relief. But refinancing into a fresh thirty-year term adds three years of payments back, so the lifetime interest improves by only about $20,000 on a loan costing over $330,000 in interest either way. The comparison above uses the current national average rather than a flat one-point drop, so its figures will differ. The rule of thumb about a one-point drop is about the payment, not the total.
What is the break-even point on a refinance?
It is the month where the accumulated monthly saving finally exceeds what the refinance cost you to close. If closing costs are $6,000 and the payment falls by $256, the break-even is roughly 23 months. Below that you lose money by refinancing; beyond it you gain. This matters most if you might move or refinance again, because the clock resets each time. Closing costs are not modelled in the comparison above — add them to the second and third scenarios before treating the result as final.
Does refinancing restart my 30-year mortgage?
Yes, unless you deliberately choose otherwise. A standard refinance issues a new loan with a new term, so three years into a thirty-year mortgage a refinance puts you back at thirty years remaining. That is the single most expensive detail in the whole decision and it is easy to miss, because the monthly payment falls at the same moment. You can refinance into a shorter term, or take the thirty-year and keep paying the old amount, which is what the third scenario above does.
Should I refinance to a shorter term or keep the 30-year and pay extra?
A 15-year loan usually carries a lower rate than a 30-year, so it wins slightly on total cost. Taking the 30-year and paying it like a 15-year gives up that rate advantage but keeps the flexibility to fall back to the lower required payment if your circumstances change. If your income is stable and the rate gap is wide, take the shorter term. If it is variable, the 30-year with voluntary extra payments is the safer version of the same plan.
How much does it cost to refinance?
Typically 2% to 5% of the loan amount, covering origination, appraisal, title, and recording. On a $290,000 balance that is roughly $6,000 to $14,000. Some lenders offer no-closing-cost refinances, which either fold the costs into the balance or take a higher rate in exchange; both are financing the cost rather than avoiding it. Always compare the total interest of the no-cost option against the paid-cost option rather than the headline rate.
Will refinancing actually lower my total interest?
Only if the rate drop is large enough to overcome the restarted term, or if you shorten the term or keep paying the old payment. The comparison above shows all three outcomes on one screen: keeping the loan, refinancing naively, and refinancing while maintaining the previous payment. The third is dramatically the cheapest, and it costs exactly the same each month as doing nothing.