Current vs new mortgage rate: monthly savings, break-even month and lifetime verdict
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Monthly Payment Change
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Break-Even Point
$—
Lifetime Savings (Net)
Current loan
New loan
Old loan balance New loan balance
Cumulative savings = old loan's interest paid to date minus new loan's interest paid to date. Net savings also subtracts the one-time closing costs.
A refinance replaces your mortgage with a new one at today's terms — and the marketing focuses relentlessly on one number, the lower monthly payment. The honest analysis needs three: the monthly change, the months to earn back your closing costs, and the lifetime cost including the term reset. This calculator computes all three, because plenty of refis that look great monthly are net losers over the life of the loan.
The Three Numbers, In Order of Honesty
Monthly savings — real, but the least informative alone: any refi that stretches your remaining balance back to 30 years drops the payment, even at a higher rate.
Break-even month = closing costs ÷ monthly savings. Before this month, the refi has cost you money; after it, savings are real. If there's any chance you'll sell or refinance again before break-even, stop here.
Lifetime net — total remaining payments on the old loan vs total payments on the new one plus costs. This is where the term-reset trap shows up in dollars.
The Term-Reset Trap, Illustrated
$290,000 remaining at 7.25% with 27 years left ($2,013/mo). Refinance to 6.125% for 30 years: payment falls to $1,762 — saving $251/month — but you now pay for 360 months instead of 324. Result: roughly equal or slightly higher lifetime cost despite a 1.1% better rate. Take the same rate over 25 years instead, or keep paying $2,013 voluntarily on the new loan, and the refi saves five figures. The rate is only half the deal; the clock is the other half.
When Refinancing Clearly Makes Sense
Situation
Why it works
Rate drops 0.75–1%+ and you'll stay 3+ years
Break-even typically lands within 18–36 months
Shortening the term (30 → 15/20)
15-year rates run ~0.5% lower AND the interest window halves
Dropping FHA mortgage insurance
Refinancing to conventional at 20%+ equity removes MIP that FHA loans otherwise carry for life
Killing an ARM before it adjusts
Trading uncertainty for a fixed rate has value beyond the arithmetic
What a Refinance Costs
Closing costs run 2–5% of the loan — appraisal, origination, title work, recording. Three ways to pay them, all priced by this calculator's inputs:
Cash at closing — cleanest; the break-even math above.
Rolled into the loan — you finance the costs; enter balance + costs as the balance and $0 costs to model it.
"No-cost" refi — the lender pays costs for a ~0.25–0.5% higher rate. Enter the higher rate and $0 costs; often wins if you won't stay long.
How to Use the Calculator
From your current statement: remaining balance, rate and years left.
From the offer: new rate, new term and quoted closing costs (the Loan Estimate's section totals).
Read all three verdict numbers — and the note, which flags the term-reset trap automatically when it applies.
Model the same rate at a shorter term before deciding; that comparison changes minds more than any other.
Frequently Asked Questions
How far do rates need to fall to justify refinancing?
The old '1% rule' is a decent shortcut, but the real answer is your break-even month vs how long you'll keep the mortgage. Big balances justify smaller rate drops; small balances need bigger ones.
Does refinancing hurt my credit?
A hard inquiry and a new account cost a few points for a few months — trivial next to the money at stake. Rate-shopping within a 14–45 day window counts as one inquiry.
Can I refinance with less than 20% equity?
Yes — conventional refis allow it with PMI, and FHA/VA streamline programs are more flexible still. PMI changes the math; add its monthly cost to the new payment when comparing.
What about cash-out refinancing?
A cash-out refi borrows above your balance and hands you the difference — it's a borrowing decision layered on a rate decision. Judge the rate swap with this tool, then judge the borrowed cash against alternatives like a HELOC (see the Home Equity Loan Calculator).
Should I roll closing costs into the loan?
It preserves cash but you pay interest on the costs for decades — $6,000 rolled into a 30-year 6% loan costs about $13,000 total. Model both ways here; paying cash usually wins if you have it.
How long does a refinance take?
Typically 30–45 days. Lock your rate at application if you like the math — the calculator's verdict is only as durable as the quote.
Is my loan information private?
Yes — every figure is processed locally in your browser and never transmitted.
Refinance when all three numbers agree: payment down, break-even inside your stay-horizon, lifetime cost lower. When only the monthly payment votes yes, that's not savings — that's a longer loan wearing a smaller costume.