How to use this refinance calculator
You need the details of your current loan and the new offer. Everything updates as you type.
- Current loan balance: what you owe today.
- Current rate and years remaining: the years left on your loan, not its original term.
- New rate and new loan term: from the quote you are considering. Try the term at 30 years and then at your remaining years to see the difference.
- Switching / closing costs: every fee involved in moving, including any fee to exit your current loan.
- Open "More options" to add the costs to the new loan instead of paying cash, or to take some cash out.
The headline shows your monthly saving (or increase), and the chart tracks your net position month by month: it starts below zero by the amount of your costs and crosses zero at break-even.
How the saving and break-even are calculated
Both loans use the standard repayment formula, then the calculator runs each one to the end, month by month.
Monthly saving = Mcurrent − Mnew · M = P × r ÷ (1 − (1 + r)−n) P = loan amount · r = annual rate ÷ 12 · n = months remaining (current loan) or new term × 12
Net savings at month m = interest saved up to month m − switching costs Break-even = the first month this is zero or more · Lifetime net saving = the figure at the end of both loans
Many calculators find break-even by dividing costs by the monthly saving. That is a fine first look, but it gives a flattering answer when the new loan is longer, because part of the lower repayment is just slower repayment of principal. Counting interest saved instead is equivalent to counting the repayments you save plus the difference in what you still owe, which is what you would actually be ahead if you sold the home that month. We show both figures, so you can see the gap.
Worked example
You owe $320,000 at 7.25% with 27 years left, so your repayment is $2,253.42 a month. A lender offers 6.25% over a new 30-year term, with $5,000 of closing costs paid in cash.
- The new repayment is $1,970.30, a saving of $283.13 a month.
- Costs ÷ saving says you break even after 18 months; counting interest saved, you break even in month 19.
- Total interest falls from $410,108 to $389,306, so you pay $20,802 less, or $15,802 after costs.
- But $76.69 of the monthly saving comes from stretching 27 years into 30, not from the lower rate, and you would be paying for three extra years.
Keep paying your old $2,253.42 a month on the new loan and it is gone in 21 years and 8 months, with total interest of $263,697. That lifts your net saving to $141,411, nearly nine times as much from the same refinance.
The term-reset trap
The most common refinancing mistake is judging the deal by the repayment alone. A new 30-year loan lowers the repayment even at the same rate, simply because you take longer to pay. Here are the options from the example side by side:
| Option | Repayment | Total interest | Debt-free in | Net after $5,000 costs |
|---|---|---|---|---|
| Keep current loan | $2,253.42 | $410,108 | 27 yrs | $0 |
| Refinance, 30 years | $1,970.30 | $389,306 | 30 yrs | $15,802 better |
| Refinance, 27 years | $2,046.98 | $343,222 | 27 yrs | $61,886 better |
| Refinance, 30 years, keep paying $2,253.42 | $2,253.42 | $263,697 | 21 yrs 8 mos | $141,411 better |
With a smaller rate cut the trap can turn a good-looking deal into a loss. At 6.75% over 30 years the repayment still drops by $177.91 a month, yet you would pay $17,077 more interest than if you stayed put. You would be ahead for a while, from month 40, then fall behind again in year 23 as the longer loan keeps charging interest. The calculator warns you when this happens.
Watch for: a lower repayment with a later debt-free date. If the "Debt-free" figure moves later, check the lifetime interest line before you sign. Our extra repayments calculator shows what paying a bit more on the new loan would save.
Rolling in costs and taking cash out
Adding the costs to the loan means no cash upfront, but you pay interest on them. In the example, rolling in the $5,000 adds about $6,083 of interest over 30 years, cutting the net saving to $9,719.
A cash-out refinance borrows extra on top of your balance. That can be a cheap way to fund renovations or replace dearer debt, but it is new borrowing, not a saving. Taking $50,000 out on the example loan adds about $60,829 of interest over 30 years and pushes the repayment above what you pay today. Borrowing more also raises your loan-to-value ratio; above 80% many lenders add mortgage insurance, so check yours with the LTV calculator.
When refinancing makes sense
- You will keep the loan well past break-even. If you might move within two or three years, high upfront costs can wipe out the saving.
- The saving comes from the rate, not the term. Compare like with like by matching the new term to your remaining years.
- Your costs are realistic. US closing costs are often 2–5% of the loan. Include appraisal, title, lender fees and any points.
- You have compared offers properly. Lower rates sometimes come with higher fees. The loan comparison calculator puts two offers side by side.
Exit costs differ by country, so include them in switching costs:
- Australia: discharge fees, break costs on fixed loans, and possibly LMI again if your new loan is above 80% LVR.
- United Kingdom: early repayment charges during a fixed or tracker deal, often a few percent of the balance, plus product and valuation fees. Many people remortgage just as the deal ends to avoid them.
- Canada: breaking a closed mortgage early usually costs the greater of three months' interest or the interest rate differential, which can be large on fixed loans.
To see your new repayment and full amortization schedule once you have decided, use the mortgage calculator.
Frequently asked questions
How long does it take to break even on a refinance?
Is it worth refinancing for a 1% lower rate?
Should I roll closing costs into the new loan?
Does refinancing reset my loan term?
Why is your break-even later than costs ÷ monthly saving?
Will refinancing hurt my credit score?
This calculator gives estimates for education and planning. It is not financial advice, and your lender's figures may differ. See how we calculate.