Refinance Calculator
Compare your current loan with a new one. Refinancing a $280,000 balance from 7 percent to 5.5 percent saves $336.07 a month and breaks even in 14 months.
How the refinance calculator works
Refinancing replaces your current loan with a new one, usually to lower the rate or the payment. The calculator finds your payment on each loan from the balance, rate and term, subtracts one from the other to get the monthly savings, and divides your closing costs by those savings to find the break-even point, the number of months before the savings repay the cost of refinancing.
The formulas
Example: On a $280,000 balance, a 7 percent loan with 27 years left costs $1,925.88 a month. A new 30-year loan at 5.5 percent costs $1,589.81, a saving of $336.07. With $4,500 of closing costs you break even in 14 months. The remaining interest is $343,985.71 on the current loan against $292,331.31 on the new one, a difference of $51,654.39. Figures are illustrations.
What to watch
Resetting to a longer term can lower the payment while raising lifetime interest, so look at both numbers. The tool assumes you pay closing costs in cash rather than rolling them into the loan, and it ignores taxes, points, escrow and mortgage insurance. If you will move or sell before the break-even point, refinancing may not pay off. The CFPB explains closing costs and the closing process. For a car loan use the auto loan refinance calculator, and to see how extra payments help, try the mortgage payoff calculator.
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Frequently asked questions
What is the break-even point on a refinance?
It is the closing costs divided by the monthly savings. Past that many months, you are ahead. For the default case it is 14 months.
Does a lower payment always mean a better loan?
No. A longer term can lower the payment but raise total interest. Compare the interest figures too.
Are closing costs included?
Yes, as a cash cost used for the break-even calculation. If you roll them into the loan, the new balance and payment will be higher.
Does it include taxes or insurance?
No. It covers principal and interest only.
When should I not refinance?
When you expect to move before the break-even point, or when the new loan costs more in total interest than you save.
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