Expert Review & Calculation Verified by: David Chen, CFA
The formulas used in this calculator are based on standard financial amortization and break-even analysis principles.
Use this **refinance mortgage rates calculator** to determine if switching to a new home loan is financially sound by calculating your monthly savings and the crucial break-even point in months.
Refinance Mortgage Rates Calculator
Calculated Monthly Savings:
Time to Break-Even (Months):
Refinance Mortgage Rates Calculator Formula
Closing Costs / (Old Monthly Payment – New Monthly Payment) $$B = \frac{C}{P_{old} – P_{new}}$$
Formula Sources: CFPB Refinancing Guide, Investopedia Break-Even Point
Variables
- Current Principal Balance: The remaining amount owed on your existing mortgage. This is the starting principal for the new loan.
- Current Interest Rate (%): The annual interest rate of your existing loan.
- Current Remaining Term (Years): The number of years left on your current amortization schedule.
- New Interest Rate (%): The potential annual interest rate on the new, refinanced loan.
- New Loan Term (Years): The new amortization period (e.g., 15, 20, or 30 years).
- Total Closing Costs ($): All fees associated with refinancing, including origination fees, appraisal, title insurance, etc.
Related Calculators
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- Early Loan Payoff Calculator
What is a Refinance Mortgage Rates Calculator?
A refinance mortgage rates calculator is a financial tool designed to help homeowners evaluate the financial viability of replacing their current mortgage with a new one. It uses key inputs—primarily the current and potential new interest rates, the new loan term, and the associated closing costs—to determine two critical outputs: the monthly savings and the break-even point.
The primary function is to calculate the break-even point, which is the exact number of months it will take for the monthly savings from the lower interest rate to equal the total closing costs paid upfront. If you plan to stay in the home longer than the calculated break-even period, refinancing is generally considered a beneficial financial decision.
How to Calculate Break-Even Point (Example)
Consider a current loan with a $2,000 monthly payment, a new loan with a $1,700 payment, and total closing costs of $6,000.
- Calculate Monthly Savings (S): Subtract the new payment from the old payment: $2,000 – $1,700 = $300.
- Identify Closing Costs (C): Total upfront cost is $6,000.
- Calculate Break-Even Point (B): Divide the closing costs by the monthly savings: $6,000 / $300 = 20 months.
- Conclusion: The homeowner must stay in the home for at least 20 months to recoup the closing costs and begin seeing a true net financial benefit from the refinance.
Frequently Asked Questions (FAQ)
What is the break-even point in refinancing?
The break-even point is the length of time (in months or years) required for the savings realized from the lower monthly payment to fully offset the total upfront closing costs associated with the new loan.
What are typical closing costs for a refinance?
Refinance closing costs typically range from 2% to 5% of the loan principal. These costs include appraisal fees, loan origination fees, title insurance, attorney fees, and sometimes points paid to lower the interest rate.
Is it always worth refinancing for a lower rate?
Not always. If you plan to move before reaching the break-even point, the closing costs will negate any interest savings, potentially costing you money. A refinance calculator helps ensure your tenure in the home exceeds the break-even period.
Does this calculator factor in points?
Yes. Any “points” (prepaid interest) should be included as part of the “Total Closing Costs” input, as they are an upfront cost that must be recouped.