The two numbers that matter
1. Break-even point. Refinancing isn't free: closing costs usually run 2% to 5% of the loan. Divide those costs by your monthly savings to see how many months it takes to earn them back. If you'll move or refinance again before then, you lose money.
2. Lifetime cost. A lower payment feels like savings, but if you're 5 years into a 30-year loan and refinance into a new 30-year loan, you've added 5 years of payments. This calculator adds up every remaining payment on both loans so you see the true total.
Avoid the “reset the clock” trap
If the calculator says your payment drops but you'd pay more overall, try a new term that matches the years you have left, or shorter. You still get the lower rate and keep your original payoff date. One click on the suggestion does it for you.
When refinancing usually makes sense
- Rates have dropped enough that you break even within two to three years.
- You plan to stay in the home well past the break-even point.
- You want to switch from an adjustable rate to a fixed one, or drop FHA mortgage insurance.
- Your credit has improved a lot since you got the original loan.
Did you know?
“No-cost” offers usually cover the fees with a slightly higher rate or by adding them to the loan. Use the “roll closing costs into the loan” box to compare both versions.
Example
You owe $280,000 at 7.25% with 27 years left, paying $1,971.74 a month. Refinancing into a new 30-year loan at 6% with $6,000 in closing costs drops the payment to $1,678.74, saving $293 a month. You break even in 21 months and save about $28,499 over the life of the loan. Choose a 27-year term at the same 6% instead and the payment is $1,747.16, but lifetime savings jump to about $66,768.
Frequently asked questions
How much does a refinance cost?
Typically 2% to 5% of the loan amount, covering lender fees, appraisal, title insurance and recording fees. Ask lenders for a Loan Estimate so you can compare.
Should I roll closing costs into the loan?
It saves cash today, but you'll pay interest on those costs for the life of the loan. Toggle the option to see the difference.
How much does my rate need to drop?
There's no magic number. A smaller drop can still pay off on a large balance with low closing costs, which is why the break-even point is the better test.