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About This Calculator
Determine whether refinancing your mortgage makes financial sense by comparing your current loan terms against a new rate and term. The calculator accounts for closing costs and shows your breakeven point — the month when cumulative savings exceed refinancing expenses. Even a half-percent rate reduction can save tens of thousands over a 30-year loan if you stay long enough.
Quick Tips
- 1 Refinancing usually pays off when you can drop your rate by at least 0.75%.
- 2 Factor in closing costs and divide by monthly savings to find your break-even point.
- 3 Avoid restarting a 30-year term; refinance into the remaining years instead.
Example Calculation
A homeowner refinances $280,000 from 7.5% to 5.75% on 30 years with $4,200 closing costs.
Old payment: $1,958 | New payment: $1,634 | Monthly savings: $324 | Break-even: 13 months
When Does Refinancing Make Sense?
Refinancing makes financial sense when the savings from a lower interest rate outweigh the closing costs within your planned ownership timeline. Generally, a rate reduction of 0.5-1% or more can justify refinancing, depending on your remaining loan balance and how long you intend to stay in the home. Other good reasons to refinance include switching from an adjustable-rate to a fixed-rate mortgage, removing PMI after reaching 20% equity, or shortening your loan term to build equity faster.
Understanding the Break-Even Point
The break-even point is the number of months it takes for your monthly payment savings to recoup the closing costs of refinancing. To calculate it, divide total closing costs by the monthly payment reduction. For example, if refinancing costs $6,000 and saves you $200 per month, the break-even point is 30 months. If you plan to stay in your home beyond this point, refinancing is likely a financially sound decision.
Refinancing Closing Costs Explained
Refinancing closing costs typically range from 2% to 5% of the new loan amount and include appraisal fees ($300-$600), title insurance, origination fees (0.5-1% of the loan), credit report fees, and recording fees. On a $280,000 loan, total closing costs generally fall between $5,600 and $14,000. Some lenders offer no-closing-cost refinancing, but this usually means accepting a slightly higher interest rate, which can cost more over the life of the loan.
Cash-Out Refinance vs Rate-and-Term
A rate-and-term refinance simply replaces your existing mortgage with a new one at a lower rate or different term, without changing the loan balance. A cash-out refinance lets you borrow more than your current balance, receiving the difference as cash that can be used for home improvements, debt consolidation, or other expenses. Cash-out refinances typically come with slightly higher rates and require at least 20% equity remaining in the home after the transaction.
Frequently Asked Questions
The old "2% rule" is outdated. Even a 0.5%–1% reduction can be worthwhile depending on your loan balance and how long you plan to stay. Use the break-even point to decide — if you will stay beyond that point, refinancing likely saves money.
The break-even point is when your monthly savings from the lower rate equal the closing costs you paid. For example, if closing costs are $6,000 and you save $200/month, the break-even is 30 months.
Refinancing from a 30-year to a 15-year mortgage increases monthly payments but dramatically reduces total interest. If you can afford the higher payment, this accelerates your path to being mortgage-free.
Closing costs typically range from 2% to 5% of the loan amount, covering appraisal, title insurance, origination fees, and other charges. On a $280,000 loan, expect $5,600–$14,000.