# Should I refinance my mortgage?

Compares the current mortgage with a new fixed-rate loan: the new payment, the monthly saving, the months to earn back the closing costs, and the interest saved over both loans.

- Page: https://www.acalculator.org/finance/refinance-calculator
- JSON spec: https://www.acalculator.org/finance/refinance-calculator.json
- Version: 1eb879e24f1f

## Default answer

Example with the default inputs (Balance today $300,000.00, Current interest rate 7.5%, Months left to pay 324, New interest rate 6.25%, New loan term (years) 30, Closing costs $6,000.00, Pay the closing costs In cash, New loan start date September 30, 2026) on the example date Wednesday, September 30, 2026: Refinancing $300,000.00 into a 30-year loan at 6.25% changes the payment from $2,162.20 to $1,847.15.

## Inputs

| Key | Label | Description |
| --- | --- | --- |
| balance | Balance today | The principal you still owe on the current mortgage. |
| rate | Current interest rate | The fixed yearly rate on the current mortgage. |
| left | Months left to pay | The number of monthly payments left on the current mortgage, for example 300 for 25 years. |
| newRate | New interest rate | The fixed yearly rate on the new loan. |
| newYears | New loan term (years) | The length of the new loan, for example 30 or 15 years. |
| costs | Closing costs | The fees and points to refinance. |
| roll | Pay the closing costs | Pay the closing costs in cash, or add them to the new loan. |
| start | New loan start date | The day the loan starts. The first payment is one month later. |

## Outputs

| Key | Label | Description |
| --- | --- | --- |
| newPayment | New monthly payment | The principal and interest payment on the new loan. |
| oldPayment | Current monthly payment | The payment that repays today’s balance over the months left at the current rate. |
| saving | Monthly saving | The current payment minus the new payment. |
| breakEven | Months to break even | The closing costs ÷ the monthly saving, rounded up to a whole month. |
| newLoan | New loan amount | Today’s balance, plus the closing costs when they are added to the loan. |
| oldInterest | Interest left on the current loan | The interest the current loan charges from today until it is paid off. |
| newInterest | Interest on the new loan | All the interest the new loan charges. |
| net | Net saving | The interest left on the current loan, minus the new loan’s interest and the closing costs. |
| payoff | New loan paid off in | The month of the new loan’s last payment, when a start date is given. |

## Method

payment = L × r ÷ (1 − (1 + r)^−n) for each loan; monthly saving = current payment − new payment; break-even = closing costs ÷ monthly saving; net saving = interest left now − new interest − closing costs.

## Assumptions

- Both loans have fixed rates, and interest is charged monthly at the yearly rate ÷ 12.
- The current payment is the one that repays today’s balance over the months left.
- Closing costs are paid in cash at closing or added to the new loan; either way they count once in the net saving.
- Tax, insurance, mortgage insurance, and any prepayment penalty are not included; nothing is rounded between months.

## Worked examples

1. balance = $300,000.00, rate = 7.5%, left = 324, newRate = 6.25%, newYears = 30, costs = $6,000.00, roll = cash gives oldPayment = $2,162.20, newPayment = $1,847.15, saving = $315.05, breakEven = 20, oldInterest = $400,553.29, newInterest = $364,974.58, net = $29,578.71. Source: Freddie Mac, Planning to refinance: break even = the total refinance cost ÷ the monthly saving.
2. balance = $200,000.00, rate = 6.5%, left = 300, newRate = 5.5%, newYears = 15, costs = $4,000.00, roll = loan gives newLoan = $204,000.00, oldPayment = $1,350.41, newPayment = $1,666.85, saving = -$316.44, net = $105,091.25.
3. balance = $120,000.00, rate = 0%, left = 120, newRate = 0%, newYears = 20, costs = $0.00, roll = cash gives oldPayment = $1,000.00, newPayment = $500.00, saving = $500.00, oldInterest = $0.00, newInterest = $0.00, net = $0.00.

## FAQ

### How do I know if refinancing is worth it?

Compare three numbers: the monthly saving, the months to break even on the closing costs, and the net saving over the life of the loans. If you plan to stay in the home longer than the break-even time and the net saving is positive, refinancing usually pays off.

### How is the break-even point calculated?

Freddie Mac's rule: divide the total cost of the refinance by the monthly saving. $6,000 of costs and a $315.05 monthly saving give 6,000 ÷ 315.05 = 19.04, so you break even in the 20th month. Freddie Mac notes that this simple rule does not work for a cash-out refinance or a shorter term, so also look at the net saving.

### Why can a lower payment still cost more?

A new 30-year loan restarts the clock. If you had 27 years left, you now pay for 30, so the monthly payment falls partly because the loan is longer. The net saving here counts all the interest on both loans and the closing costs, so it shows the full picture.

### How much does it cost to refinance?

Freddie Mac says to expect about 3% to 6% of the loan principal, for fees such as the application, appraisal, title, and points. The default here is an example; use the costs on your Loan Estimate.

### Should I add the closing costs to the loan?

Adding them means no cash at closing, but you borrow more and pay interest on the costs for the whole loan. Paying in cash keeps the loan smaller. This page counts the costs once either way in the net saving, and the interest on rolled-in costs shows up in the new loan's interest.

### Does refinancing to a 15-year loan save money?

Usually a lot of interest, but the payment often goes up. $200,000 with 25 years left at 6.5%, refinanced into 15 years at 5.5%, raises the payment by $316.44 but saves $105,091 over the loans.

## Sources

- Freddie Mac, Planning to refinance (break even: total refinance cost ÷ monthly saving; not for cash-out or shorter-term refinances). https://myhome.freddiemac.com/refinancing/planning-to-refinance
- Freddie Mac, Understanding the costs of refinancing (about 3% to 6% of the loan principal). https://myhome.freddiemac.com/refinancing/costs-of-refinancing
- Consumer Financial Protection Bureau, What is a prepayment penalty? https://www.consumerfinance.gov/ask-cfpb/what-is-a-prepayment-penalty-en-1957/
- Amortized loan payment (annuity) formula: S. A. Broverman, Mathematics of Investment and Credit, chapter 3.