Mortgage Refinance Calculator

Mortgage refinancing replaces your current home loan with a new one, ideally at a lower interest rate. The question everyone asks first is how many months it takes for the monthly saving to pay back the closing costs. The question that matters more is what the whole thing costs over its life, because a lower payment stretched over a longer term routinely costs more in total.

Break-Even Formula: Break-Even Months = Total Closing Costs ÷ Monthly Payment Savings Monthly Payment Savings = Old Monthly Payment − New Monthly Payment

Monthly Payment Formula: M = P × [r(1+r)^n] ÷ [(1+r)^n − 1]

• P = loan principal
• r = monthly interest rate (annual rate ÷ 12)
• n = number of payments (years × 12)

Lifetime Savings, which is the figure that actually decides it: Net Savings = (Old Payment × Months Left) − (New Payment × New Months) − Closing Costs

Note that the two terms are different numbers. Comparing a monthly payment on a loan with 22 years left against one on a fresh 30-year loan is not a like-for-like comparison, and it flatters the refinance every time.

What each variable means:

• Closing Costs: typically 2–5% of the loan amount: origination fees, appraisal, title insurance, attorney fees, prepaid interest.
• Rate Reduction: even 0.5% can save tens of thousands over 30 years on a large mortgage.
• Remaining Loan Term: if you are 10 years into a 30-year mortgage, you have 20 years left.

Rule of thumb: refinancing is generally worth looking at once you can cut the rate by 0.5 to 1% and you expect to stay past the break-even month. The old “2% rule” comes from an era of much higher closing costs and is too conservative now, but the logic behind it still holds: the rate cut has to be big enough that the saving outruns the fees before you move.

Worked example, same term on both loans: Current loan: $280,000 remaining, 7.25%, 25 years left → payment = $2,023.86/month New loan: $280,000, 6.25%, 25 years → payment = $1,847.07/month Monthly savings = $176.78/month, closing costs $6,200

Break-Even = $6,200 ÷ $176.78 = 36 months (3.0 years)

Over the full 25 years you pay $607,158 on the old loan against $560,322 on the new one including closing costs, so you finish $46,835 ahead.

Now the same refinance stretched back to 30 years, which is what a lender will usually quote you: The payment falls to $1,724.01/month, a much better looking $299.85/month saving, and break-even drops to 21 months. But you now make 360 payments instead of 300. Total cost rises from $607,158 to $626,843, so the “better” deal costs $19,685 more and you own the house five years later.

That gap is the whole point of this calculator, and it is why the term is an input rather than an assumption. A lower monthly payment and a cheaper loan are not the same thing. Always ask your lender to quote the shorter term alongside the 30-year, then compare the lifetime figures here.

If the break-even month is the number you came for, the mortgage refinance break-even calculator puts it in the headline instead of the monthly saving, and takes the months left on your loan rather than the years. That matters more than it sounds: partway through a mortgage, “22 years left” is a rounding of somewhere between 258 and 270 payments, and the break-even shifts with it.
Same amortization, same lifetime comparison, same answers. The worked example above comes out at $176.78 a month and 36 months on either page.