Refinance planning

Estimate a refinance payment

Use this calculator to compare your current loan with a refinanced loan, estimate monthly savings, and see how quickly closing costs could be recovered.

Understanding Mortgage Refinancing

Refinancing replaces an existing home loan with a new loan—typically featuring a different interest rate, loan duration, or structure. Homeowners primarily refinance to lower their monthly payments, reduce total interest costs, convert from an adjustable-rate mortgage (ARM) to a fixed-rate loan, or tap into home equity through a cash-out refinance.

The Break-Even Point Formula

The break-even point is the time it takes for the savings from a lower monthly payment to offset the upfront costs of refinancing. The primary metric when evaluating a rate-and-term refinance is the Break-Even Point.

$$S = M_{\text{current}} - M_{\text{new}}$$

$$\text{Break-Even Period (Months)} = \frac{\text{Total Refinance Closing Costs}}{\text{Monthly Savings } (S)}$$

Where:

$$M_{\text{current}}$$

Your current monthly principal and interest payment

$$M_{\text{new}}$$

Your projected principal and interest payment under the new loan rate and term

Real-World Refinance Scenario

Consider a homeowner who took out a $300,000, 30-year fixed-rate mortgage at 7.00% interest three years ago:

Calculating the Break-Even Point

First, calculate the monthly cash-flow savings ($S$):

$$S = M_{\text{current}} - M_{\text{new}}$$

$$S = \$1,995.91 - \$1,647.62 = \$348.29 \text{ per month}$$

Next, apply the break-even formula:

$$\text{Break-Even Period (Months)} = \frac{\text{Total Refinance Closing Costs}}{\text{Monthly Savings } (S)}$$

$$\text{Break-Even Period} = \frac{\$5,000}{\$348.29} = 14.36 \text{ months}$$

In this scenario, the homeowner recovers all refinancing costs in 14.4 months (under 1.25 years). If they plan to stay in the home longer than 15 months, the cash-flow savings exceed the cost of securing the new loan.

Important Note on Term Extension

While monthly cash flow drops by $348.29, resetting to a new 30-year loan extends the total repayment schedule from 27 remaining years to 30 years (33 total years). To prevent paying additional long-term interest, the borrower can keep making their original $1,995.91 payment or opt for a 25-year or 20-year loan term.

Frequently Asked Questions

What is the difference between a Rate-and-Term and a Cash-Out Refinance?

A rate-and-term refinance modifies your interest rate, loan duration, or both without significantly altering your principal balance. A cash-out refinance replaces your existing mortgage with a larger loan, allowing you to withdraw a portion of your accumulated home equity as liquid cash for expenses like home improvements or debt consolidation.

How much does it cost to refinance a mortgage?

Upfront closing costs typically range between 2% and 6% of the refinanced loan amount. These fees cover lender origination charges, home appraisal fees, title searches, title insurance, escrow fees, and state recording fees.

Does refinancing reset my 30-year payment schedule?

Yes, unless you choose a shorter term (such as a 15-year or 20-year loan). Refinancing into a new 30-year fixed loan resets your amortization schedule to month 1 of 360. Even if your monthly payment decreases, stretching out your principal repayment over additional years can increase overall lifetime interest unless you make accelerated principal payments.

What is the difference between financing closing costs and a "no-cost" refinance?

These are two distinct financing options that are often conflated:

• Financed Closing Costs (Capitalized Fees): You add the upfront closing fees directly to your new mortgage balance (e.g., borrowing $295,181 instead of $290,181). You pay zero out-of-pocket at closing, but your monthly payment and overall interest costs increase because you are borrowing a larger principal amount.
• No-Cost Refinance (Lender Credits): The lender covers your closing costs in exchange for charging a slightly higher interest rate on your loan (e.g., 5.875% instead of 5.50%). Your principal balance remains at $290,181 and you pay nothing out-of-pocket at closing, but your ongoing monthly savings will be lower.