What Is a Refinance Calculator?
A refinance calculator helps homeowners decide whether replacing an existing mortgage with a new loan makes financial sense. It compares your current monthly payment against the payment on a new loan with a different interest rate or term, then shows how much you would save each month and how long it takes for those savings to cover the closing costs of refinancing — the break-even point.
How to Use It
Enter your current loan balance, current interest rate, and the remaining term of your existing mortgage. Then enter the new interest rate, the new loan term, and the estimated closing costs for the refinance. The calculator computes both monthly payments, the monthly savings, and the number of months you must keep the new loan before the savings exceed the upfront cost.
The Formula Explained
Each monthly payment uses the standard amortization formula $$M = P \cdot \dfrac{r(1+r)^n}{(1+r)^n - 1}$$ where \(P\) is the loan balance, \(r\) is the monthly interest rate (annual rate \(\div 12 \div 100\)), and \(n\) is the number of payments. Monthly savings equal the old payment minus the new payment, and the break-even point equals closing costs divided by monthly savings.
$$\text{Break-Even} = \dfrac{\text{Closing Costs}}{\text{Old Payment} - \text{New Payment}}$$
Worked Example
Suppose you owe $250,000 at 6.5% with 30 years remaining. The current payment is about $1,580.17. Refinancing to 5.0% over 30 years drops the payment to about $1,342.05 — a monthly savings of roughly $238.12. With $4,000 in closing costs, you break even in about 16.8 months, so staying in the home longer than that makes the refinance worthwhile.
$$\text{Break-Even} = \dfrac{\$4{,}000}{\$1{,}580.17 - \$1{,}342.05} = \dfrac{\$4{,}000}{\$238.12} \approx 16.8 \text{ months}$$
FAQ
What is the break-even point? It is the number of months of payment savings needed to recover your closing costs. If you plan to keep the home beyond that point, refinancing usually pays off.
Does a longer term always save money? Not necessarily. A longer term lowers the monthly payment but can increase total interest paid over the life of the loan.
Are closing costs always worth it? Refinancing makes most sense when the rate drop is meaningful and you will stay in the home past the break-even point.
