How the break-even math works
Refinancing swaps your remaining balance into a new loan at a new rate and term. The calculator amortizes your current balance over the years you have left at your current rate, then over the new term at the new rate, and compares. It assumes closing costs are paid out of pocket at closing, not rolled into the new loan - if you finance them instead, your loan balance and payment will be slightly higher than shown.
Break-even is the moment your accumulated monthly savings have repaid the closing costs; refinancing only wins if you keep the loan past that point. Watch the lifetime figure too: a lower payment on a longer term can still cost more in total interest, because you are paying - at any rate - for more years.
Frequently asked questions
When is refinancing worth it?
A common rule of thumb is a rate drop of at least 0.75-1 percentage point, and - more importantly - staying in the home well past the break-even point, where accumulated monthly savings exceed what you paid in closing costs. If you might move before break-even, refinancing loses money.
Does refinancing restart the clock on my mortgage?
Yes. If you are 3 years into a 30-year loan and refinance into a new 30-year loan, you will now pay interest for 33 years total. Even with a lower rate, stretching the term back out can raise lifetime interest. Compare a 20- or 15-year term to keep the payoff date close to the original.
What are typical refinance closing costs?
Usually 2-5% of the loan amount, covering origination fees, appraisal, title work, and recording. On a $280,000 balance that is roughly $5,600-14,000. Some lenders offer no-closing-cost refinances, but they recover the cost through a higher rate - run the numbers both ways.