Finance
Refinance calculator
A lower rate is not automatically a saving. The question is whether you stay long enough to earn back the closing costs.
Break-even is the whole question
Refinancing swaps a known cost now for a smaller payment later. Divide the closing costs by the monthly saving and you get the number of months before you are ahead. Sell, move or refinance again before that month and the exercise lost you money.
On typical numbers — $6,000 of costs against a $190 monthly saving — break-even lands around 32 months. If there is any real chance you move within three years, a headline rate cut of more than a point can still be the wrong decision.
The trap of resetting the term
A lower rate on a longer term almost always lowers the payment, and can still cost more overall. Someone 4 years into a 30-year mortgage who refinances into a fresh 30-year loan has just added 4 years of interest payments, even at a better rate.
The calculator shows lifetime interest for both loans precisely so this is visible. If the monthly saving looks good but the lifetime interest goes up, you have not saved money — you have rescheduled it. Refinancing into a shorter term (matching the years you had left, or fewer) is how you capture a rate cut without extending the debt.
Rolling costs into the loan
Adding closing costs to the balance removes the cash outlay and makes break-even look instant. It is not free: you now borrow that money at the mortgage rate for the whole term. Six thousand dollars rolled into a 30-year loan at 5.9% costs roughly $12,800 by the end.
Rolling costs makes sense when cash is genuinely scarce or when you are confident you will move before the interest accumulates. As a default it is the more expensive option, and the calculator prices both so the difference is explicit.
Things that change the answer
Tax deductibility of mortgage interest, where it applies, reduces the real value of the interest saving. Cash-out refinancing raises the balance and belongs in a different calculation entirely. Prepayment penalties on the existing loan should be added to closing costs. And a shift from a variable to a fixed rate may be worth doing at a worse break-even, because you are buying certainty rather than saving money.
Common questions
How much of a rate drop justifies refinancing?
There is no universal figure — the old "1% rule" ignores balance size and how long you stay. Work out break-even instead: closing costs divided by monthly saving. If you will comfortably stay past that month, it is worth doing.
Should I roll the closing costs into the loan?
Only if cash is tight or you expect to move soon. Rolled costs are borrowed at the mortgage rate for the full term, so $6,000 rolled into a 30-year loan at 5.9% costs roughly $12,800 in the end.
Why does my lifetime interest go up despite a lower rate?
Because you restarted the clock. Refinancing 4 years into a 30-year mortgage back into another 30-year loan adds 4 years of payments. Match the new term to the years you had left to avoid it.
Does this handle cash-out refinancing?
No. Enter only your existing balance. Cash-out raises the loan above what you owe, and comparing payments then mixes a refinance with new borrowing, which needs to be judged separately.