How this calculator works
Refinancing replaces an existing loan with a new one, usually to get a lower interest rate, a different term, or both. This calculator compares the current loan's remaining payment schedule against a proposed new loan on the same balance, factoring in closing costs to find how many months it takes for the monthly savings to repay what the refinance costs upfront.
A lower rate is not automatically a better deal. If the new loan resets the clock to a longer term than what remains on the current loan, the monthly payment can drop while the total interest paid over the life of the loan actually rises, because interest keeps accruing for more months even at a lower rate. This calculator reports that lifetime interest difference directly instead of only showing the payment that looks smaller.
The formula
Payment on either loan: M = P × i ÷ (1 − (1 + i)^−n)Breakeven months = closing costs ÷ monthly savingsLifetime interest difference = (new payment × new months − balance) − (current payment × remaining months − balance)P is the current balance carried into the new loan, i the monthly rate (annual rate ÷ 12), and n the number of months for each schedule. When monthly savings are zero or negative, breakeven is undefined and reported as such rather than as a misleading number.
Worked example: $250,000 balance, 6.5% to 5%, both 25 years
- Current payment: 250,000 at 6.5% over 300 months ≈ $1,688.02 a month.
- New payment: the same $250,000 at 5% over 300 months ≈ $1,461.48 a month — a monthly savings of $226.54.
- With $4,000 in closing costs, breakeven = 4,000 ÷ 226.54 ≈ 17.66, rounded up to 18 months.
- Because the term did not change, the lower rate also lowers lifetime interest here — by about $67,963 over the full 25 years.
Frequently asked questions
Why does this calculator ask for closing costs separately from the loan amounts?
Closing costs are the real, usually upfront, price of refinancing — appraisal, origination, title and similar fees. Comparing them against the monthly savings, rather than folding them into the loan balance, gives a clean breakeven number: the point at which the savings have paid back what the refinance cost.
Can a refinance lower my payment but cost me more overall?
Yes. If the new loan's term is longer than the time remaining on the current loan, the payment can drop even with a lower rate, because the balance is stretched over more months and keeps accruing interest for longer. Always compare the lifetime interest difference, not just the payment.
Could a refinance still make sense even if my new payment isn't lower?
Rarely, on the numbers this calculator checks. If the new payment isn't lower, there is no monthly savings to recover the closing costs, so a breakeven point does not exist, and since the payment didn't drop there is no lifetime-interest benefit either — refinancing would cost money every month with nothing offsetting it. This calculator flags that case directly instead of returning a number.
If I might move before the breakeven point, should I still weigh the lifetime interest savings?
Yes — even if you would move before recouping the closing costs through monthly savings, compare your expected time in the loan against both the breakeven months and the lifetime interest difference shown here. A refinance that doesn't reach breakeven before a move usually isn't worth it on monthly savings alone, but whether it helped overall also depends on whether the new loan's term raised or lowered your total interest cost.
Does this include the cost of extending or resetting the loan term?
It accounts for it through the lifetime interest difference, which compares total interest across the full life of each loan at its own term, not just the monthly payment. That is the number to check if a longer new term worries you.