Should You Refinance Your Mortgage?
Refinancing replaces your current mortgage with a new one — ideally at a lower rate, a different
term, or both. The new loan pays off the old one, and you start a fresh schedule. It can save a
fortune or quietly cost one, and the difference is almost never the advertised rate alone. Two
numbers decide it: the break-even point and the lifetime cost. This calculator
shows both, side by side with your current loan.
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The break-even point
Closing a refinance typically costs 2–5% of the loan (origination, appraisal, title, recording
and similar fees). The break-even point is when your monthly savings have repaid those costs:
closing costs ÷ monthly savings = months to break even. With the defaults above — $6,000 of
costs and $416.97/month of savings — break-even is about 15 months. Stay in the loan longer than that and the
refinance is ahead; sell or refinance again before it, and you paid fees for nothing. Rolling the
costs into the loan removes the upfront bill — there is no break-even wait — but you then pay
interest on the fees for decades.
The term-extension trap
The most common refinance mistake is judging by the monthly payment alone. Restarting a fresh
30-year term when you have, say, 22 years left will almost always cut the payment — while quietly
adding years of interest. A loan can show a lower payment and a higher total cost at the same
time. That is why the comparison above includes lifetime interest for both loans, and why this
calculator warns you when the new loan costs more overall despite the smaller payment. If the goal
is saving money, match or shorten the term; if the goal is breathing room in a tight budget, a
longer term may still be right — just choose it with the true price visible.
Common types of refinance
- Rate-and-term: change the rate, the term, or both. The classic money-saver.
- Cash-out: borrow more than you owe and take the difference in cash — useful for high-interest debt or renovations, but it raises the loan and usually the rate.
- Streamline: simplified programs for existing FHA/VA borrowers, with less paperwork and sometimes no appraisal.
- ARM to fixed: trading an adjustable rate for the certainty of a fixed one before resets bite.
When refinancing usually does NOT pay
You plan to move before the break-even point. Your remaining balance is small or nearly paid off, so
there is little interest left to save. The new loan carries a prepayment penalty on the old one. Or
your credit has worsened enough that the rate you qualify for now erases the market’s drop. In each
case the math above will show it plainly: negative lifetime savings means keep the loan you have.
And if the current loan is simply expensive, remember the alternative — our
mortgage payoff calculator
shows what extra payments on the loan you already have can do, with no closing costs at all.
FAQ
What is the break-even point on a refinance?
Closing costs divided by monthly savings. $6,000 of costs at $300/month saved breaks even in 20 months. You only profit if you keep the new loan longer than that.
How much of a rate drop makes refinancing worth it?
There is no magic number. A 1% drop on a large, young loan pays back fast; a 0.25% drop on a small, old loan may never cover its fees. Compare break-even and lifetime savings instead.
Can a lower monthly payment still cost me more?
Yes — extending the term restarts the interest clock. A fresh 30-year loan can cost more in total than a loan with 20 years left, even at a lower rate and payment.
Disclaimer: This calculator provides estimates for educational purposes only and does not constitute financial
advice. Actual refinance offers, fees and approvals vary by lender and credit profile. Taxes, insurance and
HOA dues are excluded because they continue unchanged under both loans.