How this calculator decides
It follows two paths month by month over the years you expect to keep the new loan:
- Keep your current loan: keep paying your current balance at your current rate for the years you have left.
- Refinance: pay the closing costs, then pay the same balance at the new rate over the new term.
For each path it adds up the interest you'd pay. The refinance comes out ahead when the interest you save over that time is more than the closing costs. Your principal gets paid either way, so interest plus closing costs is the real price of each option.
Why not just use the monthly savings? A lower payment can come from a lower rate, a longer term, or both. Stretching what's left of your loan back out to 30 years lowers the payment even at the same rate, but you pay interest for longer. Comparing interest over the same period catches that.
Two ways to measure break-even
Payment break-even (months) = closing costs ÷ (current payment − new payment) Interest break-even = first month where (interest paid so far on the current loan − interest paid so far on the new loan) ≥ closing costs
The payment version is the number most calculators show, and it's easy to check by hand. The interest version is closer to the verdict, which compares the interest saved with the closing costs at the end of the years you keep the loan. They can differ: when the new term is longer, the payment drops more than the interest does, so the payment version makes the refinance look better than it is.
A longer term can even put you ahead for a few years and then behind, because later on the new loan charges more interest each month than your current one would. That's why the result depends on how long you plan to keep the loan.
Worked example
You owe $300,000 at 7.75% with 27 years left, and you're offered 7% on a new 30-year loan with $6,000 of closing costs. You expect to keep it 10 years.
- Payment: $2,212 now vs $1,996 after, $216 lower each month.
- Payment break-even: 28 months (2.3 years). Interest break-even: 34 months (2.8 years).
- Over 10 years: $215,898 of interest on the current loan vs $196,946 on the new one, plus the closing costs. You'd come out ahead by about $12,952.
Keep the new loan for all 30 years, though, and the picture changes: $418,527 of interest against $416,782 left on the current loan. Once closing costs are counted you'd be about $7,744 behind, because the balance is spread over 30 years instead of 27.
A starker case: $300,000 at 6.5% with 10 years left, refinanced into a 30-year loan at 7% with $6,000 of closing costs. The payment drops by $1,411 a month, yet over the next 10 years you'd pay about $94,173 more in interest and closing costs.
What this estimate leaves out
- Closing costs rolled into the loan. That adds them to your balance, so you pay interest on them too.
- Cash-out refinancing, points, and lender credits.
- Changes in PMI, taxes, or insurance, which usually stay the same.
- What you could earn by investing the monthly savings.
Lender fees are where refinances most often get padded. Our guide to mortgage junk fees covers what's normal.
Frequently asked questions
How is the refinance break-even point calculated?
The simple version divides closing costs by the monthly payment savings: $6,000 of costs and $200 a month of savings breaks even in 30 months. This calculator also shows an interest-based break-even, the month when the interest you've saved adds up to the closing costs. That version is more reliable when the new loan has a longer term, because a lower payment can come from stretching the loan out rather than from paying less interest.
Is a lower monthly payment always a better deal?
No. If the new loan restarts a 30-year term, part of the lower payment comes from spreading your balance over more years, and you can pay more interest in total. Compare the interest you'd pay over the years you expect to keep the loan, plus the closing costs, not just the payment.
How much are refinance closing costs?
They commonly run about 2% to 5% of the loan amount and cover lender fees, the appraisal, title insurance, and government recording fees. Your Loan Estimate lists them, and lenders' fees can differ a lot for the same loan, so it pays to compare offers.
What if the refinance has no closing costs?
A no-closing-cost refinance usually builds the costs into a higher rate or adds them to your balance. If you truly pay nothing up front, you start saving from the first month the new loan charges less interest, though a longer new term can still cost more over time. Enter $0 to see that case, and compare it with the rate you'd get if you paid the costs.
Why does it matter how long I keep the new loan?
Closing costs are paid up front, while the savings arrive a month at a time. If you sell or refinance again before the break-even point, the refinance costs more than it saves. The longer you keep the loan, the more the rate difference matters.
Does this include taxes, insurance, or PMI?
No. It compares principal and interest only. Property tax and insurance usually stay the same when you refinance. If your current loan has PMI and the new one won't, or the other way around, that difference isn't included here.
Go further
- Refi CheckUpload your mortgage statement for a plain-English read on whether refinancing looks worth it now.
- Compare refinance offersLine up two to four Loan Estimates and see which one really costs less.
- How to read a Loan EstimateWhere the rate, the fees, and the cash to close sit on a lender's quote.
- See a sample reportWhat a Mortgage Lens report looks like before you buy one.
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