Use this powerful calculator to determine your potential savings and the crucial breakeven point when refinancing your current mortgage.
Refinance Mortgage Payment Calculator
Monthly Payment Savings:
Breakeven Point:
Refinance Mortgage Payment Formula
The core calculation for your new monthly principal and interest payment (M) is based on the standard amortization formula:
Where:
- P: Principal Loan Amount
- r: Monthly Interest Rate (Annual Rate / 1200)
- n: Total Number of Payments (Loan Term in Years × 12)
Formula Source & Authority Link
Variables Explained
Understanding the inputs is key to an accurate refinance analysis:
- Current Monthly Payment: The total payment you currently make (P&I, taxes, and insurance). The calculator uses this for direct comparison against the new P&I payment.
- New Loan Principal: The total amount you are borrowing for the new mortgage. This may include the remaining balance of your old mortgage plus any financed closing costs.
- New Annual Interest Rate (%): The rate offered by the lender for the new loan.
- New Loan Term (Years): The length of time (e.g., 15, 20, 30 years) for the new mortgage.
- Refinance Closing Costs: The total fees associated with closing the new loan (appraisal, title insurance, origination fees, etc.).
Related Calculators
Explore other tools to support your home financing decisions:
- Mortgage Amortization Schedule Calculator
- Home Equity Line of Credit (HELOC) Calculator
- Loan Affordability Estimator
- Prepayment Savings Calculator
What is Mortgage Refinancing?
Mortgage refinancing involves paying off your existing loan with a new loan. The primary goal is typically to secure a lower interest rate, reduce the monthly payment, or change the loan term (e.g., from a 30-year to a 15-year term). It can also be used to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
A successful refinance saves you money over the long run, but it involves paying new closing costs, which can offset the monthly savings. Therefore, analyzing the breakeven point—the time it takes for your monthly savings to cover the upfront costs—is crucial for making a sound financial decision.
How to Calculate Refinance Breakeven Point (Example)
Assume an initial monthly payment of $1,800, a new monthly payment of $1,500, and total closing costs of $5,000.
- Calculate Monthly Savings: Subtract the new payment from the old payment. ($1,800 – $1,500 = $300 in monthly savings).
- Determine Breakeven Point: Divide the total closing costs by the monthly savings. ($5,000 / $300 = 16.67 months).
- Analyze the Term: If you plan to stay in the home longer than 16.67 months, the refinance is financially beneficial, as you will start generating net savings after that point.
Frequently Asked Questions (FAQ)
Is it always worth it to refinance for a lower interest rate?
Not always. You must factor in the closing costs. If the breakeven point is longer than you plan to stay in the home, you will lose money on the transaction. You should calculate both the monthly savings and the time to recover the costs.
What is the difference between “rate and term” and “cash-out” refinancing?
“Rate and term” refinancing simply changes the interest rate and/or the loan duration without changing the principal amount. “Cash-out” refinancing involves borrowing a larger principal amount than your current mortgage balance and taking the difference in cash.
Are closing costs always financed into the new loan?
No. You can often choose to pay closing costs in cash at the closing table, or finance them into the new loan principal. Financing them means a higher monthly payment, but less out-of-pocket cash upfront.
How often can I refinance my mortgage?
There is no legal limit, but lenders usually require a “seasoning period” of 6 to 12 months after the last closing. More importantly, you should only refinance if the interest rate difference and loan terms justify the new closing costs.