This financial tool is designed and maintained by certified professionals to ensure mathematical accuracy and adherence to financial principles.
Use our free refi mortgage calculator to determine your Break-Even Point (BEP) in months. The BEP is the crucial point where the monthly savings from your new, lower interest rate officially cover the total cost of refinancing. Enter your current loan details, new loan rate, and closing costs below.
Free Refi Mortgage Calculator
Free Refi Mortgage Calculator Formula
The calculation primarily relies on determining the difference in monthly payments and dividing the total closing costs by that saving amount to find the Break-Even Point (BEP).
Monthly Payment (M) Formula:
$$ M = P \cdot \frac{r(1+r)^n}{(1+r)^n – 1} $$
Where $r = I / 1200$ (Monthly Rate), $n = \text{Term in months (360 for 30 years)}$.
Monthly Savings (S) Formula:
$$ S = M_{old} – M_{new} $$
Break-Even Point (BEP) Formula:
$$ \text{BEP (Months)} = \frac{\text{Refinance Closing Costs (C)}}{\text{Monthly Savings (S)}} $$
Formula Sources: Investopedia – Refinancing BEP, CFPB – Mortgage Tools
Variables Explained
The inputs for the Free Refi Mortgage Calculator are:
- Current Loan Principal ($): The outstanding balance on your current mortgage.
- Current Interest Rate (%): The interest rate on your existing loan.
- New Interest Rate (%): The proposed interest rate for your new refinanced loan.
- Total Refinance Closing Costs ($): The sum of all fees (origination, appraisal, title, etc.) required to complete the refinance.
- New Loan Term: The calculator assumes a 30-year term for both the old and new loan for consistent comparison.
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What is Free Refi Mortgage Calculator?
A “free refi” (or refinance) mortgage calculator is essential for homeowners considering swapping their current mortgage for a new one, usually with a lower interest rate. While no refinance is truly “free”—there are always costs—many lenders allow you to roll these closing costs into the new loan principal, meaning you pay nothing out-of-pocket at closing.
The primary function of this calculator is not to estimate payments, but to calculate the **Break-Even Point (BEP)**. The BEP tells you the exact number of months it will take for the cash savings generated by the lower monthly payment to fully recoup the total closing costs you paid (or rolled into the loan).
If you plan to stay in your home longer than the calculated BEP, refinancing is generally a financially sound decision. If you plan to move before that point, the cost of the refinance may outweigh the benefit of the lower interest rate.
How to Calculate Free Refi Mortgage Calculator (Example)
- Determine Payments: Calculate the monthly P&I payment for the old loan ($1,854.75 at 5.5%) and the new loan ($1,432.25 at 3.5%) on a $300,000 principal.
- Find Monthly Savings: Subtract the new payment from the old payment: $1,854.75 – $1,432.25 = $422.50 in monthly savings.
- Identify Total Cost: Sum up all closing costs (e.g., $6,000).
- Calculate BEP: Divide the total costs by the monthly savings: $6,000 / $422.50 = 14.19 months.
- Conclusion: If the homeowner stays in the house for 14.19 months or more, the refinance is financially beneficial.
Frequently Asked Questions (FAQ)
What is a “no-cost” refinance?
A “no-cost” refinance means you pay zero cash at closing. The lender either pays the costs in exchange for a slightly higher interest rate, or the costs are rolled into the new principal balance.
How long does it take to recoup my closing costs?
The time it takes is your Break-Even Point (BEP). This is calculated by dividing your total closing costs by your total monthly savings in principal and interest.
Should I always choose the lowest interest rate?
Not always. A lower rate might come with higher closing costs. You must use a calculator like this one to ensure the savings from the lower rate justify the increased upfront cost and result in a favorable BEP.
Is the loan term important for a refinance?
Yes. Refinancing from a 30-year term back to a new 30-year term resets your amortization, increasing the total interest paid over the life of the loan. A 15-year term will save substantial interest but increase your monthly payment.