How the mortgage refinance calculator works
Rates dip, a lender sends an email with a lower number in the subject line, and the question arrives: should I refinance? It is a fair question and a surprisingly slippery one, because the number most people are shown, the monthly savings, is not the number that decides it. This page shows that number too, and then the one that does.
Enter what you owe, your rate, the years left, and the new rate and term. The page prices the new payment, the usual break-even (closing costs divided by the monthly savings), and then the true one: it tracks what you have paid plus what you would still owe on each loan, month by month, and tells you when the refinance actually pulls ahead and where you stand in the year you expect to sell or pay off. It also finds the new rate at which the refinance starts to pay for your stay, and compares every term side by side.
The formula
usual break-even = closing costs ÷ monthly savings
where you stand after any month = interest the refinance has saved you − closing costs
P is the loan, r is the monthly rate (the yearly rate divided by 12, as a decimal), and n is the number of monthly payments. The last line is exact, not an approximation: count what you have paid plus what you still owe on each loan, subtract, and everything cancels except the interest and the closing costs. It is the one number that tells you whether a refinance has paid for itself.
Worked example
Say you took out a mortgage near the fall 2023 peak in rates and now owe $300,000 at 8% with 27 years left: $2,262.84 a month. Refinancing into a 30-year loan at 7.40%, with 3% closing costs ($9,000) rolled in, makes the new loan $309,000 and the payment $2,139.45: $123.39 a month less.
The usual break-even is $9,000 ÷ $123.39 = 73 months, about six years, so anyone planning to stay the typical 11 years would be told to go ahead. But this refinance never pulls ahead of keeping the loan: after 11 years it leaves you $590 behind. It comes closest about twelve and a half years in, still $416 behind, then slips back, and over the full life of both loans it ends $37,043 behind.
Why the usual break-even misleads
A mortgage payment is part interest and part principal. A new 30-year loan on a balance that had 27 years to go spreads the principal over three more years, so each payment carries less principal than before. Part of the "savings" is simply paying the debt down more slowly: money you have not saved, only postponed. The usual break-even counts all of it.
It can mislead the other way too. Take the same refinance but keep your current payoff date, so the new loan runs 27 years instead of 30. The payment falls only $56.27, and the usual break-even says 160 months, more than 13 years, past the typical stay. Yet the refinance pulls ahead after 7 years and 8 months and is $4,169 ahead at 11 years, because nearly all of that saving is interest. Same rate, same costs: one version looks good and never pays, the other looks like it misses your stay and pays well inside it.
The rate drop that pays for your stay
You will hear that a refinance is worth it when rates fall one point, or two. Each rule answers a real question for someone, and the page answers it for you: the new rate at which the refinance comes out ahead by the year you expect to leave. For the worked example, with 3% closing costs rolled in and a 30-year term:
| Years you stay | Refinance pays below | Rate drop needed |
|---|---|---|
| 3 | 6.77% | 1.23 points |
| 5 | 7.14% | 0.86 points |
| 7 | 7.28% | 0.72 points |
| 11 | 7.38% | 0.62 points |
| 15 | 7.37% | 0.63 points |
The one-point rule fits a stay of about four years; for the typical 11-year stay a little over half a point does it. A short stay needs a big drop because the closing costs have little time to earn back. Past about 13 years the drop needed creeps back up a little, because a new 30-year loan on a 27-year balance adds three years of payments at the end. The page runs this search for your own balance, costs, and stay.
Three ways to take the savings
The term table in the results compares every option, and three are worth knowing by name. A new 30-year loan gives the lowest payment and resets the clock. Keeping your payoff date gives a smaller payment cut that is almost all interest, and lenders can often write a custom term, 22 or 26 years, to match. And the quiet winner: refinance to the 30-year loan, then keep paying your old payment. In the worked example, paying $2,262.84 a month on the new $309,000 loan pays it off in 25 years and 1 month, 23 months sooner than the loan you have, with $370,357 of interest against $433,160 if you keep it, and you keep the right to drop back to the lower payment in a hard month.
What a refinance costs
Closing costs usually run 2% to 6% of the loan for the appraisal, title work, and origination, so refinancing $300,000 costs roughly $6,000 to $18,000; the calculator uses 3%, $9,000, unless you enter your own. Rolling them into the loan keeps cash in your pocket but adds interest on them; paying at closing lowers the payment and the break-even. On the worked example, paying the $9,000 at closing makes the new payment $2,077.14 and puts you $6,253 ahead after 11 years instead of $590 behind.
Do you need 20% equity to refinance?
No. Fannie Mae allows a refinance with no cash out up to 97% of the home's value on a fixed-rate loan when it already owns your mortgage, and 95% otherwise, but above 80% of the value you will pay private mortgage insurance, which the calculator does not add. If you want cash out of the refinance, the limit drops to 80%; our cash-out refinance calculator handles that version, and it shows why taking cash out of a low-rate mortgage is so expensive.
FHA and VA borrowers have streamlined options built for exactly this job. The VA's Interest Rate Reduction Refinance Loan needs no appraisal or credit underwriting package and carries a 0.5% funding fee. FHA's Streamline Refinance cuts the documentation and underwriting the lender must do; its upfront mortgage insurance is 1.75% of the loan, or 0.01% if FHA endorsed your current loan before June 2009.
Is it worth refinancing to save a little?
Often yes, if you stay long enough, and the answer is in the results rather than in a rule. The calculator shows where you stand year by year, so you can see the whole shape: behind at first by the closing costs, then catching up as the interest savings build, and, on a longer new term, sometimes slipping back in the extra years at the end. Home sellers had owned their homes a median of 11 years in the National Association of Realtors' 2025 survey, an all-time high, which is why the calculator starts there, but your own plans are the number that matters.
Taxes and points
Points paid to refinance are generally not deductible all at once: the IRS spreads them evenly over the life of the new loan, and whatever is left becomes deductible when the loan ends, unless you refinance again with the same lender. Mortgage interest only helps if you itemize, and the 2026 standard deduction is $16,100 for a single filer and $32,200 for a married couple filing jointly, so for many households the refinance decision is the same before and after tax.