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Refinance Calculator: Monthly Savings and Break-Even Point
Enter your current balance, rate and remaining term, then the new rate, term and closing costs. The tool shows the new payment, the monthly saving and how many months it takes to earn back the fees.
What is being compared
Your current payment is recalculated from the balance, rate and months remaining. For a fixed-rate loan, that reproduces the payment on your statement apart from rounding. The new payment uses the same level-payment formula with the new rate and term:
Payment = B × r ÷ (1 − (1 + r)−n)
where B is the amount borrowed, r the monthly rate and n the number of months. If you add closing costs to the loan, B becomes the balance plus the costs, so you pay interest on the fees. If you pay them in cash, they are added to the total paid on the new loan instead.
Break-even months
The simplest test of a refinance is how long it takes the monthly saving to repay the costs: Break-even months = costs ÷ monthly saving. With 4,000 of costs and a 125 monthly saving, the answer is 32 months. If you expect to keep the loan well beyond that, the refinance has time to pay off; if a move is likely sooner, it may not.
This measure ignores interest earned on the cash you spent and the effect of the term. It is a quick screen, and the full-term comparison in the results adds the second view.
The term trap
Restarting a thirty-year clock after several years of payments lowers the monthly figure almost automatically, even at the same rate. That feels like a saving, but the extra years of interest can outweigh it. The warning above appears when the payment is lower but total cost over the full terms is higher. To avoid the trap, choose a new term close to the months remaining, or keep making the old payment so the extra goes to principal. The mortgage payoff calculator shows what extra payments do.
Other points to check
- Whether the old loan charges a prepayment penalty.
- Whether the new rate is fixed, and whether it is quoted with discount points paid for it.
- Whether cash-out, a changed borrower or an altered insurance requirement is part of the new loan; this calculator handles only a straight rate-and-term change.
- The effect on tax, which depends on where you live and is not modelled.
Fees and rates are estimates. Compare official loan estimates side by side before committing.
As a sanity check on the output, a refinance usually deserves a closer look when the rate falls by a meaningful margin and you plan to stay past the break-even point. A small rate drop paired with high fees can take years to pay off, and a rate drop paired with a much longer term can look good monthly but cost more overall. Run the calculator with the same term as your remaining months first, then with the longer term, to separate the effect of the rate from the effect of the term.
Worked example
A 300,000 balance at 7% with 29 years left, refinanced to a 5.75% thirty-year loan with 5,000 in closing costs paid in cash.
Inputs
| Current loan balance | 300000 |
|---|---|
| Current interest rate | 7 % |
| Months remaining on current loan | 348 |
| New interest rate | 5.75 % |
| New loan term | 360 months |
| Closing costs and fees for the new loan | 5000 |
| How are the costs paid? | Paid in cash at closing |
Result
Costs are recovered after about 19 months.
| Current payment | 2,016.39 |
|---|---|
| New payment | 1,750.72 |
| New loan amount | 300,000.00 |
| Break-even point | 18.8 months |
| Total paid on current loan to the end | 701,703.78 |
| Total paid on new loan, including cash costs | 635,258.68 |
| Difference over the full terms | Save 66,445.10 |
- Break-even months equal the costs divided by the monthly saving. If you may sell or refinance again before that point, the refinance would not pay for itself.
Financial disclaimer: Results are estimates for planning and education. They are not financial, tax or legal advice. Fees, taxes, rates and rules vary by lender, product and country, so confirm figures with your provider or a qualified adviser before making decisions.
Frequently asked questions
How do I know if refinancing is worth it?
Divide the closing costs by the monthly saving to get break-even months, and compare that with how long you expect to keep the loan. Also check total cost over the full terms.
Should I roll closing costs into the loan?
Doing so avoids cash at closing but means you borrow and pay interest on the fees. The selector lets you compare both approaches.
Does a lower payment always mean I save money?
No. A longer new term can lower the payment while increasing total interest. Check the full-term difference shown in the results.
Where do I find months remaining?
Use your latest loan statement or work backwards from the original term minus payments made.
Does this handle cash-out refinancing?
Not directly. Add the cash taken out to the new loan by raising the balance and check the payment.
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References and sources
- Consumer Financial Protection Bureau: educational guides on refinancing and loan estimates. Link
- Level-payment amortization formula from introductory finance texts.