Compare your current mortgage with a new loan to see if refinancing saves you money.
Mortgage refinancing replaces your existing home loan with a new one, typically to secure a lower interest rate, change the loan term, or switch from an adjustable rate to a fixed rate. The decision to refinance involves weighing the upfront costs against the long-term savings, and this calculator helps you make that comparison with concrete numbers.
The most common reason to refinance is to take advantage of lower interest rates. When market rates drop significantly below your current rate, refinancing can reduce your monthly payment and save tens of thousands of dollars in interest over the life of the loan. However, refinancing is not free. Closing costs typically range from 2% to 5% of the loan amount, meaning you need to stay in the home long enough for the monthly savings to recoup those costs.
The break-even point is the most important metric when evaluating a refinance. It tells you how many months of lower payments you need to recover the closing costs. If your break-even point is 24 months and you plan to stay in the home for at least 5 more years, refinancing makes strong financial sense. If the break-even is 60 months and you might move in 3 years, refinancing could actually cost you money. This calculator computes the break-even point automatically, giving you a clear answer to the question of whether refinancing is worth it for your situation.
A rate-and-term refinance changes the interest rate, loan term, or both, without taking additional cash out. This is the most straightforward type and is what this calculator models. A cash-out refinance lets you borrow more than your current balance and receive the difference in cash, which can be used for home improvements, debt consolidation, or other purposes. Cash-out refinancing typically comes with slightly higher rates and should be approached carefully since it increases your overall debt.
Several scenarios commonly justify refinancing. First, if interest rates have dropped at least 0.5% to 1% below your current rate, the monthly savings will likely outweigh closing costs within a reasonable timeframe. Second, if you want to switch from a 30-year to a 15-year mortgage, you can build equity faster and pay dramatically less interest, even if the monthly payment increases. Third, if you have an adjustable-rate mortgage and want the stability of a fixed rate, refinancing protects you from future rate increases. Fourth, if your credit score has improved significantly since you got your original mortgage, you may qualify for a better rate that was previously unavailable to you.
Refinancing is not always beneficial. If you are more than halfway through your mortgage term, most of your payment already goes toward principal rather than interest, so the savings from a lower rate are diminished. If you plan to sell the home within a few years, you may not reach the break-even point. If the new loan extends your repayment period (for example, refinancing 20 remaining years into a new 30-year loan), your monthly payment may drop, but you could pay more total interest over the longer term. Always look at both the monthly savings and the total cost comparison.
Closing costs for a refinance are similar to those for an original mortgage. They typically include an appraisal fee ($300 to $600), title search and insurance ($700 to $1,500), origination fee (0.5% to 1% of the loan), credit report fee ($25 to $50), recording fees, and various other administrative charges. Some lenders offer no-closing-cost refinancing, but these loans typically have slightly higher interest rates to compensate, so you end up paying the costs over the life of the loan rather than upfront. Compare both options to determine which is more cost-effective for your timeline.
Refinancing generally makes sense when you can lower your interest rate by at least 0.5% to 1%, when you plan to stay in the home long enough to recoup closing costs, or when you want to switch from an adjustable-rate to a fixed-rate mortgage.
The break-even point is the number of months it takes for your monthly savings to equal the closing costs. For example, if closing costs are $4,000 and you save $200 per month, your break-even point is 20 months.
Refinancing typically costs 2% to 5% of the loan amount. On a $250,000 loan, expect $5,000 to $12,500 in closing costs including appraisal fees, title insurance, and origination fees.
Refinancing from a 30-year to a 15-year mortgage can save substantial interest, but monthly payments will be higher. It makes sense if you can comfortably afford the higher payment.
Refinancing may cause a small, temporary dip of 5-10 points due to the hard inquiry. The impact usually recovers within a few months, and long-term financial benefits typically outweigh this short-term effect.