Finance & Economics · Real Estate & Mortgages · Mortgage Calculations
Refinancing Calculator
Calculates monthly payment savings, break-even period, and total interest savings from refinancing an existing mortgage into a new loan.
Calculator
Formula
M is the monthly payment, P is the remaining loan principal (balance), r is the monthly interest rate (annual rate divided by 12), and n is the total number of monthly payments remaining (loan term in years multiplied by 12). The formula is applied twice — once for the current loan and once for the new refinanced loan — to determine monthly savings. Break-even period (months) = Closing Costs ÷ Monthly Savings. Total interest saved = (Remaining payments on current loan × current monthly payment) − (New loan payments × new monthly payment) − Closing Costs.
Source: Standard amortization formula — Fabozzi, F.J., 'Fixed Income Mathematics' (4th ed.), McGraw-Hill; widely used by CFPB and HUD mortgage guidance.
How it works
Refinancing replaces your existing mortgage with a new loan — typically at a lower interest rate, a different term, or both. The core calculation uses the standard amortization formula to determine the fixed monthly payment for both the current and proposed loans. The difference between these two payments represents your monthly savings. However, refinancing is not free: lenders charge closing costs that typically range from 2% to 5% of the loan balance, covering appraisal fees, title insurance, origination fees, and recording charges.
The break-even period answers the most important refinancing question: how long does it take for the cumulative monthly savings to recover the upfront closing costs? It is calculated simply as Closing Costs ÷ Monthly Savings. If you plan to stay in the home longer than the break-even period, refinancing is generally advantageous. If you expect to move or sell before that point, the closing costs may outweigh any savings. The total interest saved metric goes further, comparing the total interest paid over the full remaining life of both loans, then subtracting closing costs to give a true net lifetime benefit.
This calculator is most useful for rate-and-term refinances — the most common type, where the goal is a lower rate or shorter term without cashing out equity. It applies to conventional, FHA, and VA fixed-rate mortgages. The amortization formula assumes equal monthly payments over the full loan term, which matches the structure of virtually all standard residential mortgages in the United States, Canada, and the UK.
Worked example
Suppose you have a remaining balance of $250,000 on your current mortgage at 6.5% annually with 25 years remaining. Your lender offers a refinance at 5.0% annually for a new 30-year term, with $5,000 in closing costs.
Step 1 — Current monthly payment: r = 6.5% ÷ 12 = 0.5417%, n = 300 months. M = 250,000 × [0.005417 × (1.005417)^300] ÷ [(1.005417)^300 − 1] ≈ $1,688.95 per month.
Step 2 — New monthly payment: r = 5.0% ÷ 12 = 0.4167%, n = 360 months. M = 250,000 × [0.004167 × (1.004167)^360] ÷ [(1.004167)^360 − 1] ≈ $1,342.05 per month.
Step 3 — Monthly savings: $1,688.95 − $1,342.05 = $346.90 per month.
Step 4 — Break-even period: $5,000 ÷ $346.90 ≈ 14.4 months. If you stay in the home beyond about 15 months, you recover the closing costs.
Step 5 — Total interest saved: Total paid on current loan = $1,688.95 × 300 = $506,685. Total paid on new loan = $1,342.05 × 360 = $483,138. Gross savings = $506,685 − $483,138 = $23,547. After closing costs: $23,547 − $5,000 = $18,547 net savings over the life of the loan.
Limitations & notes
This calculator assumes a fixed interest rate on both the current and new loans. It is not suitable for adjustable-rate mortgages (ARMs), where future payments will change as market rates shift. The model also does not account for the opportunity cost of the closing costs — money paid upfront could alternatively be invested, reducing the net benefit of refinancing. Additionally, extending the loan term (e.g., resetting from 25 remaining years to 30 years) increases your total payments even if the monthly payment falls; always review the total interest comparison alongside monthly savings. Tax implications — such as the deductibility of mortgage interest — are not included. Cash-out refinances, where the new loan exceeds the current balance, require a modified approach that accounts for the additional principal borrowed. Finally, this calculator does not factor in private mortgage insurance (PMI), which may apply if the refinanced loan-to-value ratio exceeds 80%.
Frequently asked questions
What is a good break-even period for a mortgage refinance?
Most financial advisors consider a break-even period of under 24 months to be favorable, and under 18 months to be excellent. If you plan to stay in the home for at least twice the break-even period, the refinance is generally considered financially worthwhile. Homeowners who move frequently should be cautious about paying high closing costs for modest rate reductions.
How much does a 1% lower interest rate save on a $250,000 mortgage?
On a $250,000 mortgage with 30 years remaining, dropping from 6% to 5% reduces the monthly payment from approximately $1,499 to $1,342 — saving about $157 per month, or roughly $1,884 per year. Over the full 30-year term, the total interest saving is approximately $56,500 before closing costs. The exact amount depends on the remaining loan term.
Does refinancing reset the amortization clock?
Yes. When you refinance into a new 30-year mortgage, your amortization schedule restarts from year one, meaning a larger proportion of early payments goes toward interest rather than principal. Even if the monthly payment drops, you may pay significantly more total interest if you extend the remaining term substantially. Compare total interest paid on both scenarios, not just the monthly payment.
What closing costs should I expect when refinancing?
Typical refinance closing costs range from 2% to 5% of the loan amount. For a $250,000 loan this is $5,000 to $12,500. Common charges include loan origination fees (0.5%–1%), appraisal ($300–$600), title insurance ($500–$1,500), recording fees ($25–$250), and prepaid items like property taxes and homeowner's insurance escrow. Some lenders offer no-closing-cost refinances, but these typically carry a higher interest rate.
When does it NOT make sense to refinance?
Refinancing may not make sense if: you plan to sell the home before reaching the break-even period; the new rate is only marginally lower (less than 0.5% for large balances, less than 1% for smaller balances); your credit score has declined significantly since the original loan, resulting in unfavorable new rate offers; or you are late in your existing amortization schedule and have already paid most of the interest, since restarting a 30-year term dramatically increases total interest paid.
Last updated: 2025-01-15 · Formula verified against primary sources.