How the refinance math works
Both payments come from the standard loan formula, M = P × i ÷ (1 − (1 + i)^−n), using the balance you still owe. Then:
- Monthly savings = current payment − new payment.
- Break-even = closing costs ÷ monthly savings. That's how many months it takes to win back what you paid to refinance.
- Lifetime difference = everything left to pay on the old loan − (everything you'll pay on the new loan + closing costs).
Worked example
You owe $250,000 at 7.5% with 27 years left, so you pay $1,801.83 a month. A new 30-year loan at 6.25% would be $1,539.29, saving $262.54 a month. With $5,000 of closing costs, you break even after about 20 months.
Watch the term
Starting a new 30-year loan when you only had 27 years left lowers the payment partly by stretching it out. That can mean more interest in total even at a lower rate. The calculator shows the lifetime difference, closing costs included, so you can see both sides. A 15- or 20-year refinance often saves the most overall.
When refinancing usually makes sense
- You'll stay in the home well past the break-even point.
- The new rate is meaningfully lower, often around 0.75% to 1% or more, though smaller drops can still pay off when closing costs are low.
- You want to switch from an adjustable rate to a fixed one, drop FHA mortgage insurance, or shorten the term.
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This compares principal and interest only. Taxes and insurance usually stay the same after a refinance. It's an estimate, not financial advice; your lender's loan estimate shows the real costs.