Mortgage Refinance Calculator

How this calculator works

Frequently asked questions

How is the break-even month calculated?

It is the first month in which refinancing is genuinely cheaper, comparing the full economic position of each path: everything paid up to that month plus the balance still owed on the loan. The refinance path also carries the closing costs, at month 0 if paid upfront or inside the new balance if rolled in. This is stricter than dividing closing costs by the monthly payment saving, and deliberately so: the naive division is fooled by rolled-in costs, while the balance-aware definition charges them back. A large term extension is judged over the shared horizon instead: if the stretched loan's extra interest erases the early advantage by then, no break-even is reported at all.

Is the 1% rule a good way to decide whether to refinance?

Only as a first filter. The rule of thumb says refinance when the new rate is at least one percentage point lower, but the true threshold depends on the loan size, the remaining term, the closing costs, and how long you will keep the loan. Agarwal, Driscoll, and Laibson (2013) derived the optimal refinancing threshold in closed form and showed it varies substantially across borrowers, so a fixed 1% cutoff is only a rough proxy. This calculator does the exact arithmetic for your own numbers instead: a 0.5 point drop can pay on a large balance with low costs, while a 1.5 point drop can lose money if you sell before break-even.

Should I pay closing costs upfront or roll them into the loan?

Paying upfront is cheaper overall, because rolled-in costs are borrowed money: they increase the new balance and accrue interest for the whole term. Rolling them in preserves your cash and still usually breaks even within a reasonable time, since the calculator charges the larger balance back month by month. If you have the cash and plan to keep the loan long-term, pay upfront; if cash is tight, roll them in and check that the break-even month still arrives well before you expect to sell or repay.

Why am I warned when I pick a longer new term?

Because a longer term almost always lowers the monthly payment while raising the total cost: the balance is repaid more slowly, so it accrues interest for more years. That combination is the classic refinancing trap, a visible monthly win paired with an invisible lifetime loss. The calculator flags it whenever the new term is longer than your remaining term and the lifetime cost of the new loan, closing costs included, exceeds the cost of keeping the current one. If you want a like-for-like comparison, set the new term equal to your remaining term.

Can refinancing make sense when the new rate is not lower?

Yes, when you shorten the term. Refinancing from 20 remaining years into 10 at the same rate raises the monthly payment but repays principal much faster, so total interest falls sharply. In that case a payment-based break-even is meaningless, so the calculator leads with the interest saved by the earlier payoff date instead, comparing both paths at the shorter loan's payoff and netting out the balance the longer loan would still owe.

What does this calculator not include?

It models fixed-rate repayment loans held to term. It does not include variable or teaser rates, prepayment penalties on the old loan, tax effects such as mortgage interest deductions, or any lender-specific conditions, and it assumes the closing costs figure you enter is complete. Closing costs themselves vary by market: in some countries refinancing means thousands in fees and taxes, while in others, such as Italy with its surroga, switching lenders is free by law. Check the rules and costs for your own market before deciding.