Refinance Calculator

Is Refinancing Worth the Cost?

When interest rates drop, homeowners are flooded with advertisements promising incredibly low mortgage rates. However, refinancing a mortgage is not free. Lenders charge thousands of dollars in closing costs to process a new loan. Our free refinance calculator helps you cut through the marketing noise to determine exactly if, and when, a new loan makes mathematical sense.

To use the tool, enter your current loan balance and your current monthly payment. Then, enter the terms of the proposed new loan—specifically the new interest rate, the new term (e.g., 15 or 30 years), and the estimated closing costs. The calculator will instantly reveal your new monthly payment, your total lifetime savings, and your critical break-even point.

The Most Important Metric: The Break-Even Point

The single most important number when evaluating a refinance is the break-even point. This metric tells you exactly how many months it will take for your monthly savings to reimburse you for the upfront cost of the new loan.

For example, if a bank charges you $3,000 in closing costs to lower your monthly payment by $100, your break-even point is 30 months ($3,000 / $100).

If you plan to sell the house and move in 2 years (24 months), you should not refinance. You will have paid the bank $3,000, but only recouped $2,400 in savings, resulting in a net loss of $600. If you plan to stay in the home for 10 years (120 months), the refinance is a fantastic idea, as it will generate $9,000 in pure profit after the break-even point.

Beware the 30-Year Reset Trap

A common trap homeowners fall into is constantly refinancing into new 30-year mortgages. Let’s say you have lived in your home for 10 years and have 20 years left on your original mortgage.

If you refinance into a brand new 30-year mortgage to lower your monthly payment, you are extending the life of your debt by an entire decade. While your monthly payment might drop significantly, you will likely end up paying tens of thousands of dollars more in total lifetime interest to the bank.

To avoid this trap, try to refinance into a term that matches your remaining timeline. If you have 20 years left on your current loan, ask the lender to quote you a 20-year or 15-year refinance. This ensures you capture the lower interest rate without extending your time in debt.

Cash-Out Refinancing vs. Rate-and-Term

There are two primary types of refinancing:

1. Rate-and-Term: This is the standard refinance where you are simply trying to secure a lower interest rate or change the length of the loan (e.g., moving from a 30-year to a 15-year). The total loan balance remains roughly the same.
2. Cash-Out Refinance: In a cash-out refinance, you borrow more than you currently owe by tapping into the equity of your home. If your house is worth $400,000 and you only owe $200,000, you have $200,000 in equity. You could refinance into a new $250,000 loan, using $200k to pay off the old mortgage and taking the remaining $50,000 in raw cash to fund a renovation or pay off high-interest debt.

If you are considering using a cash-out refinance to consolidate credit card debt, use our debt payoff calculator to compare the total lifetime interest costs before making the leap. It is extremely important that you fully understand the long-term mathematical consequences of moving unsecured, short-term credit card debt into a secured, thirty-year mortgage against your primary residence.