Mortgage Refinance Calculator

Should You Refinance Your Mortgage?

Refinancing is one of the most powerful financial moves a homeowner can make—when done correctly. It involves taking out a new loan to pay off your existing mortgage, usually to secure a lower interest rate, shorten the loan term, or cash out equity.

However, refinancing isn't free. Closing costs can run thousands of dollars, and resetting your loan term can sometimes cost you more in long-term interest. Our refinance calculator helps you look past the lower monthly payment to see if the deal actually makes financial sense.

The 3 Main Reasons to Refinance

1. Lower Your Monthly Payment (Rate & Term)

If interest rates have dropped since you bought your home, refinancing can lower your monthly obligation. This frees up cash flow for other investments or expenses.

2. Shorten Your Loan Term

If you can afford a higher monthly payment (or if rates have dropped significantly), you can refinance from a 30-year to a 15-year mortgage. You will build equity much faster and save a fortune in interest.

3. Cash-Out Refinance

If your home has increased in value, you can refinance for more than you owe and take the difference in cash. This is often used for home improvements or debt consolidation. Be careful: this increases your debt load and often comes with a slightly higher interest rate.

Understanding the Break-Even Point

The "Break-Even Point" is the most critical metric in refinancing. It answers the question: "How long does it take for my monthly savings to pay for the cost of the refinance?"

Scenario:

• Refinance Closing Costs: $4,000
• Monthly Savings: $200
• Break-Even: $4,000 ÷ $200 = 20 Months

If you plan to sell your home in 12 months, DO NOT refinance. You will lose money. If you plan to stay for 5 years (60 months), refinancing is a great deal because you enjoy 40 months of pure savings.

The "Resetting the Clock" Trap

Be wary of focusing only on the monthly payment. If you have been paying your 30-year mortgage for 7 years, you have 23 years left. If you refinance into a new 30-year loan, you are extending your debt payoff date by 7 years.

Even with a lower interest rate, paying interest for 7 extra years might mean you pay more total interest over your lifetime.

Pro Tip: If you refinance to a new 30-year loan for the lower rate, try to make extra payments so you still pay it off on your original timeline.

When Refinancing is a BAD Idea

• You plan to move soon: If you won't stay past the break-even point.
• Closing costs are too high: Sometimes "no-closing-cost" loans just roll the fees into a higher interest rate. Do the math carefully.
• Prepayment penalties: Check your current loan for penalties (rare, but possible).
• You have bad credit: If your credit score has dropped since you bought the house, you might not qualify for a better rate.