How the calculator works
- Your loan now: what you owe, the years left and your rate.
- The new loan: its rate and closing costs, and how long you expect to keep it.
- Result: what you’d save in interest after costs, your new payment, and when the costs are earned back.
Example
$300,000 left over 27 years, refinancing from 8.24% to 7.24% with $6,000 of closing costs, and keeping the new loan 7 years:
| Stay | Refinance | |
|---|---|---|
| Monthly payment | $2,312 | $2,111 |
| Interest over 7 years | $165,705 | $144,534 |
| Closing costs | $0 | $6,000 |
| Saving after costs | $15,171 |
The closing costs are earned back after 2 years.
How the size of the rate drop changes it, with the same loan and costs:
| Rate drop | Payment falls by | Costs earned back | Saving over 7 years |
|---|---|---|---|
| 0.5 points | $102 a month | 4 years | $4,605 |
| 0.75 points | $152 a month | 2 years, 8 months | $9,893 |
| 1 point | $201 a month | 2 years | $15,171 |
| 1.5 points | $299 a month | 1 year, 4 months | $25,694 |
The bigger the drop in rate, the sooner the closing costs are earned back. A small drop can still be worth it if you’ll keep the loan for many years; a big one, even if you might move in a few.
When refinancing makes sense
- You’ll keep the loan past the break-even point. If you might sell or refinance again before then, the costs can outweigh the saving.
- The rate drop is big enough to earn back the closing costs in time. The calculator shows exactly when.
- You want a shorter loan. Moving from 30 years to 15 usually raises the payment but saves a lot of interest.
Closing costs and points
Closing costs are often 2% to 5% of the loan: lender fees, an appraisal, title insurance and recording fees. Some lenders offer no-closing-cost loans, with a higher rate instead. Each point costs 1% of the loan and lowers the rate; it’s only worth it if you keep the loan long enough for the lower interest to pay back the points. Add them to the closing costs to compare.
A lower payment isn’t always a saving
A new 30-year loan spreads what you owe over more years, so the payment drops even if you pay more interest in total. To come out ahead, keep the new loan’s term close to the years you have left, or keep paying what you pay now so the extra goes to the principal. The mortgage payoff calculator shows what paying extra saves.
Before you refinance
- Get Loan Estimates from several lenders: compare the rate and the costs together.
- Keep the term short: a new 30-year loan restarts the clock. Keep paying what you pay now to stay on track.
- Check your credit: the best rates go to the highest credit scores. See credit scores explained.
Want to borrow against your home without changing your mortgage? See the HELOC calculator.