Reviewed for accuracy by: David Chen, CFA
Use our comprehensive Mortgage Refinance Calculator to determine your potential monthly savings and calculate the break-even point for refinancing your existing home loan. Input your current and new loan details to make an informed financial decision.
Mortgage Refinance Calculator
Refinance Calculation Results
New Monthly Payment: $0.00
Monthly Savings: $0.00
Break-Even Point: 0 Months
Mortgage Refinance Calculator Formula
The primary formula used to calculate the new monthly payment (M) for your refinanced loan is the standard amortized loan payment formula:
Where:
- P = New Loan Principal Amount
- i = Monthly Interest Rate (Annual Rate / 12)
- n = Total number of payments (Term in years × 12)
Formula Source: Consumer Financial Protection Bureau (CFPB) | Investopedia
Variables Explained
Understanding the inputs is crucial for accurate refinancing analysis:
- Current Monthly Mortgage Payment: The amount you currently pay each month. Essential for calculating savings.
- New Loan Principal Amount: The total amount you wish to borrow with the new loan.
- New Annual Interest Rate (%): The interest rate you qualify for with the new loan.
- New Loan Term (Years): The duration of the new mortgage (e.g., 15 or 30 years).
- Refinance Closing Costs ($): The one-time fees associated with initiating the new loan (appraisal, title fees, origination fees, etc.).
Related Calculators
- Simple Amortization Schedule Calculator
- Loan Prepayment Savings Estimator
- Bi-weekly Payment Savings Calculator
- Rent vs. Buy Analysis Tool
What is Mortgage Refinancing?
Mortgage refinancing is the process of replacing an existing mortgage with a new one. Homeowners typically refinance to obtain a lower interest rate, reduce their monthly payment, or change the term of their loan. It can be a powerful financial tool, especially when interest rates drop significantly, allowing you to save thousands over the life of the loan.
However, refinancing is not free. It involves closing costs, which can range from 2% to 5% of the loan principal. Therefore, the decision to refinance depends on whether the potential monthly savings will outweigh these upfront costs within a reasonable time frame. Our calculator helps you pinpoint exactly when you will “break even” on your investment.
How to Calculate Mortgage Refinance (Example)
- Determine New Monthly Payment: Use the amortization formula with your new principal ($300,000), new rate (4.5% or 0.00375 monthly), and new term (360 months) to find the new payment. (Result: $1,520.06).
- Calculate Monthly Savings: Subtract the New Monthly Payment ($1,520.06) from your Current Monthly Payment (e.g., $1,800.00). ($1,800.00 – $1,520.06 = $279.94).
- Find the Break-Even Point: Divide your Refinance Closing Costs (e.g., $5,000) by the Monthly Savings ($279.94). ($5,000 / $279.94 ≈ 17.86 months).
- Make a Decision: If you plan to stay in the home longer than the break-even period (18 months in this example), refinancing is financially beneficial.
Frequently Asked Questions (FAQ)
Is refinancing always a good idea if I get a lower rate?
Not always. While a lower rate is beneficial, you must consider the closing costs. If the costs are too high, and you plan to sell soon, you might not stay in the house long enough to reach the break-even point and realize net savings.
What is the “break-even point” in refinancing?
The break-even point is the moment in time (measured in months) when the total accumulated monthly savings equal the total closing costs paid for the refinance. After this point, you begin to realize net financial benefit.
Can I refinance if I have little equity in my home?
It is more difficult. Most lenders prefer a Loan-to-Value (LTV) ratio of 80% or less. Government-backed programs like the FHA Streamline or VA Interest Rate Reduction Refinance Loan (IRRRL) may offer options with less equity.
Should I choose a shorter or longer loan term when refinancing?
A shorter term (e.g., 15 years) saves you significant interest and builds equity faster, but it results in a higher monthly payment. A longer term (e.g., 30 years) provides the lowest monthly payment but maximizes the total interest paid.