Refinance guide
A refinance replaces an existing mortgage with a new loan. A lower rate can reduce interest, but the result also depends on the new term, financed or upfront costs, points, cash-out, and how long the loan is kept. This calculator uses complete monthly schedules so the comparison is not reduced to the new payment alone.
For nearby planning checks, compare the Mortgage Calculator, Amortization Calculator, Home Affordability Calculator, Down Payment Calculator, and Debt-to-Income Ratio Calculator.
Refinance Calculation Methodology and Assumptions
For each scenario, the calculator applies the standard fixed-rate payment formula to a monthly schedule. Each row calculates interest on the opening balance, applies the scheduled payment, caps the final payment at the remaining balance, and carries the new balance forward. New principal equals current balance plus financed closing costs and cash-out; points are calculated as a percentage of that new principal and remain an upfront cost. The horizon view compares payments plus remaining balance at the selected month, with applicable upfront costs added to the refinance side.
- Current loan balance
- The outstanding principal on the existing mortgage. It is the starting balance for the keep-current schedule and the base for the new loan amount.
- Current interest rate
- The annual rate on the existing loan. The calculator converts it to a monthly rate for each amortization row; a zero rate is handled separately.
- Remaining term
- The number of years left on the current schedule. It is compared with the new term to show whether payoff is sooner or later.
- New interest rate
- The proposed annual rate for the refinance. It is entered independently from points because points do not automatically change a quoted rate.
- New term
- The years in the proposed loan schedule. Restarting with a longer term can lower the payment while increasing the time interest accrues.
- Closing costs
- Fees and charges associated with replacing the mortgage, such as lender, title, appraisal, government, and prepaid items. Exact categories vary by market and offer.
- Financed closing costs
- Costs added to the new principal. They are included once in the new amortization schedule rather than added again as an upfront expense.
- Upfront refinance costs
- Costs paid outside the new principal. They are added to the refinance side of the total-cost and horizon comparisons.
- Points
- An upfront lender charge expressed as a percentage of the new loan amount. The term is used in mortgage pricing guidance from the CFPB and other consumer-finance authorities.
- Cash-out
- Additional borrowing above the balance replaced by the refinance. It is shown separately from refinance costs because it is cash received, not a fee.
- Monthly payment change
- The new required principal-and-interest payment minus the current scheduled payment. The page uses neutral increase, decrease, or unchanged wording.
- Break-even
- For upfront costs with a lower new payment, it is upfront costs divided by monthly payment reduction. Financed costs use a cumulative outflow comparison, and may not have a crossing month.
- Interest difference
- Current remaining interest minus new-loan interest across both complete schedules. It is not inferred from the monthly payment difference.
- Total-cost difference
- Current remaining scheduled payments minus refinance scheduled payments and applicable upfront costs. Financed costs are already inside the refinance payments, avoiding double counting.
How to interpret the comparison
Monthly payment change describes cash flow, while interest difference describes borrowing cost over each complete schedule. Total-cost difference includes scheduled payments and upfront costs, but does not count financed costs twice. A lower payment can still cost more when the new term is longer; a higher payment can still save interest when it shortens the payoff.
Practical checks before acting
Check the lender Loan Estimate, prepayment rules, escrow changes, taxes, insurance, points, appraisal costs, and any cash you need at closing. Ask how long you expect to keep the loan and compare the result at that horizon. A calculator cannot verify eligibility, rate availability, property value, or the exact fees in your offer.
Authoritative refinance resources
The Consumer Financial Protection Bureau explains mortgage refinance terms in its mortgage key terms, discusses questions to consider in its Should I refinance? guide, and describes common charges in its closing-cost guidance.
Frequently asked questions
What is the refinance break-even point?
When costs are paid upfront and the new payment is lower, traditional break-even is upfront costs divided by the monthly payment decrease. If costs are financed or the payment is not lower, review the cumulative, interest, total-cost, and payoff comparisons instead.
How much lower should my refinance rate be?
There is no universal required reduction. Savings depend on the balance, remaining term, new term, rate, costs, points, cash-out, and how long you keep the loan.
Should I refinance to a shorter loan term?
A shorter term can reduce lifetime interest and pay the balance off sooner, but it commonly raises the required payment. Compare the payment, total interest, total cost, and your planning horizon.
Can refinancing increase my monthly payment but still save money?
Yes. A higher payment can reflect a shorter term or a larger principal, while the complete schedule may still contain less interest or a lower total cost. The result is not determined by the payment alone.
Should closing costs be financed?
Financing costs preserves cash at closing but increases principal and usually adds interest. Paying upfront avoids adding that amount to principal but requires available cash. Compare both choices with the same rate and term.
Does refinancing restart my mortgage?
A new loan has its own term and schedule. If the new term is longer than the current remaining term, the payoff can be extended even when the new rate or payment is lower.
What is a cash-out refinance?
A cash-out refinance borrows more than the balance being replaced and delivers the difference as cash, subject to lender and property rules. The extra principal naturally increases scheduled payments and borrowing cost.
How do points affect refinancing?
Points are an upfront cost expressed as a percentage of the new loan amount. This calculator estimates their dollar cost but does not change the rate automatically; enter the proposed rate separately.
Trust and methodology
Sources: Consumer Financial Protection Bureau mortgage key terms, its consumer refinance guide, and its closing-cost guidance. Results are educational estimates, not mortgage, financial, tax, or legal advice.