Mortgage Refinance Calculator

When Should You Refinance?

Refinancing replaces your existing mortgage with a new loan — ideally at a lower interest rate, with better terms, or to pull cash out for major expenses. The math is simple in principle: if the monthly savings recover the closing costs before you sell or move, refinancing pays off. The refinance calculator above computes that break-even point directly.

The Break-Even Formula

Break-even is the number of months until cumulative monthly savings equal the closing costs:

Break-Even Months = Closing Costs ÷ Monthly Savings

Worked example: closing costs are $5,000. Old payment $2,025, new payment $1,703 — savings of $322/month. Break-even = $5,000 ÷ $322 ≈ 16 months. If you plan to stay in the home for at least 16 months, refinancing pays for itself.

But also check lifetime savings. the refinance calculator reports both. On the same example, extending the term from 25 years remaining to a new 30-year loan may make lifetime savings negative — even though monthly savings is positive, you pay more total interest over the longer life of the new loan. Rule of thumb: if lifetime savings is negative, you are trading monthly cash flow for more total interest cost. Decide if that trade is worth it.

Types of Refinance

• Rate-and-term refinance: Change the interest rate, term, or both. No cash to borrower. Cheapest closing costs ($3,000-$8,000 typical).
• Cash-out refinance: New loan is larger than current balance; you take the difference in cash. Lenders cap at 80% LTV. Closing costs are similar to rate-and-term.
• FHA Streamline Refinance: For existing FHA loans only. No appraisal, minimal credit check, reduced paperwork. Best for borrowers whose home value dropped below purchase price.
• VA IRRRL (Interest Rate Reduction Refinance Loan): For existing VA loans only. Similar to FHA streamline — minimal paperwork, no appraisal, no funding fee for some veterans. The lowest-cost refinance available.
• No-closing-cost refinance: Lender covers closing costs in exchange for a higher interest rate (typically 0.25-0.50% higher). Useful if you plan to sell within 5 years.

Typical Refinance Closing Costs

Refinance closing costs typically run 2-5% of the loan amount, often $4,000-$10,000 on a $200,000 loan. Common line items:

• Loan origination fee: $1,000-$3,000 (0.5-1% of loan)
• Appraisal: $500-$800 (cash-out and jumbo require 2 appraisals)
• Title insurance & search: $1,000-$3,000 (varies by state)
• Recording fees: $50-$500 (county clerk)
• Discount points (optional): 0.25-1% of loan per point; each point lowers rate ~0.25%
• Prepaid escrow: 2-6 months of taxes + insurance (refundable from old escrow)

For full detail, see our closing costs guide. (Source: CFPB Closing Disclosure tool.)

Refinance Traps to Avoid

the refinance calculator surfaces these traps in the lifetime savings number:

• Extending the term restarts the amortization clock. Refinancing a 25-year-remaining loan into a new 30-year loan cuts your monthly payment but typically adds $30,000-$80,000 in lifetime interest. Lifetime savings will be negative — the refinance calculator shows this clearly.
• Buying discount points only pays off if you keep the loan long enough. Each point costs 1% of the loan and lowers the rate ~0.25%. Break-even for points: typically 4-7 years. Add the points cost to closing costs in the refinance calculator above to model this.
• Cash-out resets equity. Pulling $50,000 out of a $300,000 home means your new loan is $50,000 larger — and your equity drops by the same amount. If home prices fall 10%, you could owe more than the home is worth.
• "No closing cost" is not free. The lender raises your rate by 0.25-0.50% to cover the costs. Over 30 years that adds up to tens of thousands in extra interest. Run both scenarios through the refinance calculator.

FHA Streamline vs VA IRRRL vs USDA Streamline: Which Refinance Is Cheapest?

If your current loan is government-backed, you may qualify for a "streamline" refinance that skips the standard appraisal, credit check, and income verification. The table below compares the three major government streamline programs — each requires your existing loan to be the same type as the new one (FHA→FHA, VA→VA, USDA→USDA):

The VA IRRRL is the cheapest streamline refinance overall — 0.50% funding fee vs FHA Streamline's 1.75% UFMIP. The USDA Streamlined Assist is the most restrictive — you must still meet the USDA income limit (115% of area median) and the property must remain in a USDA-eligible rural area. If you are underwater on your home (home value less than loan balance), the FHA Streamline and VA IRRRL are your only refinance options — standard refinancing requires a new appraisal and will not approve an underwater loan. (Sources: HUD Handbook 4000.1 for FHA Streamline; VA Lenders Handbook Chapter 6 for IRRRL; USDA HB-1-3555 Chapter 6 for Streamlined Assist.)

Cash-Out vs Rate-and-Term Refinance: Tax Treatment Under IRS Pub 936

The IRS treats mortgage interest on cash-out refinances very differently from rate-and-term refinances. Under IRS Publication 936 (Home Mortgage Interest Deduction), the rules are:

• Rate-and-term refinance: All mortgage interest on the refinanced loan is deductible as home acquisition debt, up to the $750,000 loan limit (married filing jointly) or $375,000 (married filing separately). The interest deduction continues on the full balance as long as no cash is taken out.
• Cash-out refinance: Only the portion used to "buy, build, or substantially improve" the home is treated as home acquisition debt. Interest on the cash-out portion is home equity debt — deductible only if the cash was used to substantially improve the home. Cash used to pay off credit cards, fund a business, pay college tuition, or invest does not generate deductible mortgage interest. The $750,000 loan limit applies to the combined acquisition + improvement debt.

Worked example. A homeowner refinances a $300,000 remaining balance into a $400,000 loan, taking $100,000 cash out. If the $100,000 is used to add a bedroom and remodel the kitchen (substantial improvements), all $400,000 in mortgage interest is deductible. If the $100,000 is used to pay off credit card debt, only the interest on $300,000 (the original acquisition debt) is deductible — the interest on the other $100,000 is non-deductible. This is for the mortgage interest deduction on Schedule A (Form 1040). Consult a tax professional for your specific situation. (Source: IRS Publication 936 — Home Mortgage Interest Deduction.)

When NOT to Refinance: The Amortization Reset Penalty

The biggest hidden cost of refinancing is the amortization reset. When you refinance a 30-year loan that is 10 years in (20 years remaining) into a new 30-year loan, you go back to month 1 of a 360-month amortization schedule. In month 1, roughly 75%–85% of your payment goes to interest and only 15%–25% to principal. In month 121 of the original loan, roughly 50%–60% goes to interest and 40%–50% to principal. By resetting the clock, you trade principal paydown progress for a lower monthly payment — and the principal paydown penalty is often larger than the rate savings. The calculator's lifetime savings number captures this. If lifetime savings turns negative, the amortization reset is eating your rate savings. Consider these alternatives instead of refinancing into a new 30-year term:

• Refinance into a 20-year or 15-year term at the lower rate. Monthly payment may increase, but lifetime interest savings are significantly larger and the amortization clock respects your existing progress.
• Recast (re-amortize) your existing loan. Many lenders offer a one-time recast — you make a lump-sum principal payment and the lender re-amortizes the remaining balance over the original term at the same rate, lowering your monthly payment without a refi. Recast fees are typically $250–$500 vs $5,000+ for a full refinance. There is no credit check or appraisal.
• Make extra principal payments without refinancing. Adding $200/month in extra principal to your current 6.5% loan may save more lifetime interest than refinancing to 5.5% with a term extension. Run both scenarios: use the extra payment field in the calculator for your current loan vs the refinance scenario above.

Advanced Break-Even: Including Tax Effects and Opportunity Cost

The simple break-even formula (closing costs ÷ monthly savings) ignores two real-world factors that can shift the break-even by 12–24 months:

1. Tax effect of lost interest deduction. Refinancing to a lower rate reduces mortgage interest — but that also reduces your mortgage interest deduction (if you itemize). For a borrower in the 24% marginal tax bracket, a $1,000 reduction in annual mortgage interest increases taxable income by $1,000, costing $240 in additional federal tax — reducing "real" monthly savings by $20/month. The break-even stretches further.
2. Opportunity cost of closing costs. If closing costs are $8,000 and you would otherwise invest that at 7% annually, you give up roughly $560/year in investment returns. Over 3 years, that is ~$1,700 in foregone gains.

The adjusted break-even formula:

Adjusted Break-Even = Closing Costs ÷ (Monthly Savings − Tax Loss − Opportunity Cost)

This typically adds 6–18 months to the simple break-even. The calculator above uses the simple formula. For your exact tax-adjusted break-even, input a slightly higher closing cost (add 10%–15% to account for tax and opportunity effects) or consult a CPA. (Source: Freddie Mac, Refinancing Your Mortgage.)

How This Calculator Works

Last updated: June 29, 2026

The refinance calculator runs two amortizations in parallel — your current loan over its remaining term, and the new loan over its full term — and compares them.

Three-step calculation

1. Compute current loan's remaining payment.

   M = P × [ r(1 + r)n ] / [ (1 + r)n − 1 ]

   For $300,000 at 6.5% over 300 months: M ≈ $2,025.62.
2. Compute new loan's payment on the new principal (current balance + cash out, NOT including closing costs which are paid in cash). For $300,000 at 5.5% over 360 months: M ≈ $1,703.37.
3. Find break-even. Monthly savings = $2,025.62 − $1,703.37 = $322.25. Break-even = $5,000 ÷ $322.25 ≈ 16 months.

Verify in a spreadsheet

=PMT(0.065/12, 300, -300000)   ' old payment = $2,025.62
=PMT(0.055/12, 360, -300000)   ' new payment = $1,703.37

(Source: amortization formula matches the CFPB Loan Estimate tool math.)

Assumptions & limitations

• Closing costs are paid in cash, not rolled into the loan. If you finance the closing costs, add them to the cash-out field.
• Lifetime savings compares total interest of the current loan's remaining term vs the new loan's full term. Extending the term will make lifetime savings negative even if monthly savings is positive.
• Property taxes and homeowners insurance are NOT included. These are usually the same before and after refinance.
• Discount points are NOT modeled separately. Add their cost to the closing costs field if applicable.
• PMI is NOT included. Refinancing from an FHA loan to a conventional loan can drop MIP entirely — that additional savings is not reflected here. Use the conventional calculator for the new loan with PMI to compare.
• Rate does not include LLPAs (loan-level price adjustments) for cash-out refinances, which typically raise the rate 0.25-0.75%.

Sources & Editorial Standards

• CFPB — Refinancing Your Home
• CFPB — Closing Disclosure
• Freddie Mac PMMS — Current Rates
• FHFA — Refinance Statistics

Found an error? Email admin@loancalculatorpro.online. See our editorial standards.