How the comparison works
The current payment comes from your remaining balance, rate and years left. The new payment uses the same balance — plus closing costs if you add them to the loan — at the new rate and term.
A simple break-even (closing costs ÷ monthly savings) ignores one thing: the two loans pay down principal at different speeds. This calculator tracks both balances month by month and counts the refinance as ahead only when payment savings plus the balance difference cover the costs.
When refinancing tends to make sense
- The rate drop is meaningful. Closing costs are similar whether you save 0.25 or 1.5 percentage points, so small drops rarely pay off.
- You will stay past break-even. Selling or refinancing again before then means the costs were not recovered.
- The term fits your plans. Moving to a new 30-year loan late in your current one lowers the payment but can add years of interest. A 15- or 20-year term often keeps the payoff date in place.
What this calculator leaves out
Escrow (property tax and insurance) is excluded because it does not change when you refinance. Cash-out refinances, points bought to lower the rate, and the mortgage interest deduction are not modeled. To see the full payment including taxes and PMI, use the mortgage calculator.
Common questions
How is the break-even point calculated?
It is the first month in which the refinance is ahead: the payment savings so far, plus any difference in loan balance, exceed the closing costs. When closing costs are paid upfront and the term is similar, that is roughly closing costs divided by the monthly savings.
Why can a lower payment still cost more?
Refinancing starts a new term. Turning 25 remaining years into a new 30-year loan spreads the balance over five more years, so the payment falls even if the rate does not — but you pay interest for longer. Compare the lifetime figure, not just the monthly one.
Should I pay closing costs upfront or roll them into the loan?
Rolling them in avoids cash at closing but adds them to the balance, so you pay interest on them for the life of the loan. Paying upfront gives a lower balance and an earlier break-even if you have the cash.
How much does it cost to refinance?
Closing costs on a refinance are commonly 2% to 5% of the loan amount: lender fees, appraisal, title insurance and recording fees. A “no-closing-cost” refinance usually builds those costs into a higher rate instead.
Sources
- Federal Reserve — A Consumer’s Guide to Mortgage Refinancings
- Freddie Mac — Primary Mortgage Market Survey (weekly average rates)
Results are estimates for educational use and are not financial, tax or legal advice. Confirm figures with your lender, plan administrator or a tax professional before you act. Spotted an error? Tell us.