Refinance Calculator

What is Refinancing?

Refinancing is the process of replacing an existing debt obligation (like a mortgage) with a new one under different terms. The original loan is paid off completely by the new loan, leaving the borrower with a new monthly payment schedule, a new interest rate, and potentially a new lender.

Most homeowners refinance their mortgages to lower their interest rates, reduce their monthly payments, cash out some of their home equity, or change the loan type (e.g., from an Adjustable-Rate Mortgage (ARM) to a Fixed-Rate Mortgage).

The Break-Even Point

Refinancing is not free. When you originated your first mortgage, you paid closing costs—appraisal fees, title insurance, origination fees, etc. When you refinance, you have to pay those costs again, which typically total 2% to 6% of the new loan balance.

The Break-Even Point is the moment when your accumulated monthly savings exceed the upfront cost of refinancing. For example, if refinancing costs $4,000 in closing fees, but saves you $200 per month, it will take 20 months ($4,000 / $200) to break even. If you plan to sell the house or move before 20 months pass, refinancing is a financially losing proposition.

When Should You Refinance?

1. You can significantly lower your interest rate: The traditional rule of thumb is that refinancing makes sense if you can reduce your interest rate by at least 1% to 2%. However, even a 0.5% drop might be worthwhile if you have a very large loan balance and plan to stay in the home for a long time.
2. Your credit score has radically improved: If you bought your home with a low credit score and accepted a high rate, refinancing now that you have an excellent score could save you thousands.
3. You want to shorten your loan term: Many homeowners refinance from a 30-year to a 15-year mortgage. Because 15-year rates are lower, the monthly payment might remain similar or only slightly higher, but the loan will be paid off in half the time, saving massive amounts of interest.
4. You want to tap into your home equity (Cash-Out Refinancing): If your home has massively appreciated in value, you can refinance for a larger amount than you currently owe, taking the difference in cash for home improvements or debt consolidation.

Important Caveats

One of the biggest mistakes borrowers make is "resetting the clock." If you have paid exactly 10 years into a 30-year mortgage and you refinance into a *new* 30-year mortgage, you will now be paying for that house for 40 years total. While your monthly payment will drop drastically, the total interest paid over those 40 years will be astronomical.

This is why our calculator defaults the "New Term" to the remaining years of your current loan (Original Term - Years Passed) to give you an accurate apples-to-apples comparison of true interest savings.