Mortgage Refinance Savings Calculator
Calculate your potential monthly savings and break-even point.
Current Monthly Payment (P&I):
New Monthly Payment (P&I):
Monthly Savings:
Lifetime Interest Savings:
Break-Even Point:
Is Refinancing Your Mortgage Worth It?
Refinancing a mortgage can be a powerful financial move, but it isn't always the right choice for every homeowner. To determine if you should pull the trigger, you need to look beyond just the interest rate and consider the "break-even point"—the moment when your monthly savings finally outweigh the upfront costs of the new loan.
How This Refinance Calculator Works
This tool compares your current loan obligation against a potential new mortgage. It factors in:
- Current Principal Balance: The actual amount you still owe on your home.
- Interest Rate Differential: The gap between what you pay now and the current market rates.
- Closing Costs: Usually 2% to 5% of the loan amount, covering appraisals, title insurance, and origination fees.
- Loan Term: Whether you are resetting to a 30-year term or shortening to a 15-year term.
The 1% Rule: Historically, many experts suggested refinancing only if you could drop your rate by at least 1%. However, with today's high home values, even a 0.5% drop can result in significant monthly savings.
Understanding the Break-Even Point
The break-even point is the most critical metric for refinancing. It is calculated by dividing your total closing costs by your monthly savings. For example:
- Closing Costs: $6,000
- Monthly Savings: $200
- Break-even: 30 Months (2.5 years)
If you plan to stay in your home for at least 5 years, this refinance would be a smart financial decision. If you plan to sell in 2 years, you would actually lose $1,200 by refinancing.
When Should You Refinance?
Savings aren't the only reason to refinance. You might consider it if:
- You want to switch from an ARM to a Fixed Rate: If you have an Adjustable-Rate Mortgage and want the security of a consistent payment.
- You want to remove PMI: If your home value has increased significantly, refinancing might help you eliminate Private Mortgage Insurance.
- You need cash out: Using home equity for debt consolidation or home improvements.
- You want to shorten the term: Moving from a 30-year to a 15-year mortgage to pay the home off faster and save tens of thousands in interest.
Realistic Example
Imagine you have a $400,000 balance at 7%. Your monthly payment (P&I) is $2,661. If you refinance into a new 30-year loan at 5.5% with $8,000 in closing costs, your new payment becomes $2,271. You save $390 per month. Your break-even point would be approximately 21 months. Over the life of the loan, you could save over $100,000 in interest payments.