Refinance in 3 steps
- Interest savedInterest left on the current loan − total interest on the new loan
- Cost to switchBalance × prepayment penalty % + closing costs and other fees
- Net savings and break-evenInterest saved − cost to switch; break-even is the first month the running interest savings reach the cost to switch
Net savings = interest saved − cost to switch
How this refinance calculator works
Refinancing replaces your current loan with a new one, usually to get a lower interest rate, a different term or a lower monthly payment. Whether it is worth it comes down to one comparison: how much interest you save over the life of the loan against how much it costs to switch. This calculator builds a full amortization schedule for both loans and compares them month by month.
- Monthly payment for each loan uses the standard amortizing formula
P × r × (1+r)ⁿ ÷ ((1+r)ⁿ − 1), where P is the balance, r is the monthly rate (annual rate ÷ 12) and n is the number of months. - Interest saved = total interest left on the current loan − total interest on the new loan.
- Cost to switch = balance × prepayment penalty % + closing costs and other fees.
- Net savings = interest saved − cost to switch.
- Break-even month is the first month in which the running total of monthly interest savings reaches the cost to switch.
Worked example
You owe 250,000 at 7% with 25 years left. A lender offers 5.75% for 25 years with 4,000 in closing costs and there is no prepayment penalty.
| Current loan | New 5.75% / 25 yrs | Offer B 5.5% / 30 yrs | |
|---|---|---|---|
| Monthly payment | 1,766.95 | 1,572.77 | 1,419.47 |
| Total interest | 280,083.50 | 221,828.27 | 261,011.50 |
| Interest saved | – | 58,255.23 | 19,072.00 |
| Net savings after 4,000 costs | – | 54,255.23 | 15,072.00 |
| Break-even month | – | 16 | 13 |
Offer B has the lowest payment and breaks even sooner, because it charges less interest in the early months. But resetting the clock to 30 years adds five extra years of payments, so over the whole term it saves about 39,000 less than the 25-year option. This is the trade-off the comparison button is designed to show.
Tips before you refinance
- Think about how long you will keep the loan. If you might move or sell within the break-even period, the closing costs may never be recovered.
- Match the remaining term first. Comparing a 25-year balance against a fresh 30-year loan mixes two effects. Run the same term first to see the pure rate benefit, then try other terms.
- Ask about every fee. Origination fees, discount points, appraisal and title charges can add up to a few percent of the balance. “No-closing-cost” loans usually build the cost into a higher rate.
- Check penalties on the old loan. Some loans charge a prepayment penalty for early payoff in the first years. Put the percentage in the penalty field so it is counted.
Cautions
The results assume fixed rates and that you make every scheduled payment with no extra principal. Adjustable-rate loans, interest-only periods, cash-out refinancing, rolling closing costs into the balance, and property taxes or insurance held in escrow are not modeled. The time value of money is also ignored: savings far in the future are worth less than cash you pay today. Use the result as a starting point and confirm the figures with the lender’s official loan estimate before you sign.