Refinancing replaces your current mortgage with a new one — usually to grab a lower interest rate, shorten the term, or switch from an adjustable to a fixed rate. The catch is closing costs: lenders typically charge 2%–5% of the loan amount in fees, which means the lower payment has to run for a while before you actually come out ahead. This calculator lays the old loan and the proposed new loan side by side, computes the monthly saving, subtracts the closing costs, and tells you the break-even month — the point from which every payment is pure profit. It also shows total interest under both scenarios so you can see the lifetime effect, not just the monthly one.
How the break-even works
Example
$300,000 balance, 24 years left at 7.0%, refinancing to 5.75% for 24 years with $6,000 closing costs. The monthly payment drops by about $228. Break-even arrives in roughly 27 months. Stay past that and you save; sell or refinance again before it and you lose money.
What refinancing costs
Expect an appraisal, origination fee, title search and insurance, and recording fees — typically 2%–5% of the loan. A "no-closing-cost" refinance just rolls the fees into a higher rate or a bigger loan balance, so run the numbers both ways. Also note: resetting to a fresh 30-year term lowers the payment but can raise total interest even at a lower rate.
Frequently asked questions
When is refinancing worth it?
Usually when the new rate is at least 0.75–1% lower, your credit and equity qualify you for the best pricing, and you will stay in the home past the break-even month.
What is the break-even point?
The month when cumulative monthly savings finally exceed the closing costs you paid. Before that point the refinance has cost you money; after it, you are saving.
Does refinancing hurt my credit score?
A hard inquiry may dip your score a few points temporarily, and the old account closing plus a new account opening changes your credit mix. The effect is usually small and fades within months.
Can I refinance with little equity?
Most conventional lenders want at least 20% equity to avoid PMI, though some programs allow less. Less equity usually means a higher rate, which shrinks the benefit.