Refinance Calculator

What the Refinance Calculator tells you (and what it assumes)

- Your old monthly payment vs your new monthly payment - Your monthly savings - Your break-even point (how long it takes for savings to cover closing costs) - Your total savings over the remaining term (after closing costs)

Important assumption: the calculator uses your Current Balance as the loan amount for both the old and new loans, and it keeps the same Remaining Years for both scenarios. That means it’s comparing “refinance into the same remaining term” rather than switching to a new 30-year clock. If you’re considering a different term (like restarting at 30 years), run a second scenario by changing Remaining Years to match the new term you’d choose.

Inputs you’ll need (and how to find them)

1. Current Balance The remaining principal on your mortgage today. Find it on your latest mortgage statement or online account.

2. Current Rate (%) Your existing interest rate (annual). This is usually fixed for fixed-rate loans; for adjustable-rate loans, use the current rate you’re paying now.

3. New Rate (%) The interest rate you expect on the refinance offer. Use the quoted note rate (not APR) if you want a clean comparison of payment and interest.

4. Remaining Years How many years left until your current loan is paid off. If you’re 5 years into a 30-year loan, you likely have about 25 years remaining (unless you’ve paid extra).

5. Closing Costs Total refinance costs you’ll pay out of pocket (or roll into the loan—more on that later). Include lender fees, appraisal, title, recording, and other required charges. If you’re not sure, use the Loan Estimate from the lender.

Key terms to keep straight: Current Balance, Current Rate, New Rate, Remaining Years, Closing Costs, monthly savings, break-even point, total savings.

How the calculator does the math (step-by-step)

### 1) Convert annual rates to monthly rates Mortgage payments are monthly, so annual rates are converted to monthly decimals:

- Current monthly rate: cr = (Current Rate / 100) / 12 - New monthly rate: nr = (New Rate / 100) / 12

Example: 7% becomes 0.07/12 = 0.0058333 per month.

### 2) Convert remaining years to number of payments n = Remaining Years × 12

Example: 25 years remaining becomes 300 payments.

### 3) Calculate the monthly payment for each loan For an amortizing loan:

Payment = B × [ r(1+r)^n ] / [ (1+r)^n − 1 ]

Where: - B = Current Balance - r = monthly interest rate - n = number of payments remaining

The calculator computes: - old_pmt using cr - new_pmt using nr

(If a rate is 0, it falls back to simple principal/term: B/n.)

### 4) Monthly savings monthly_savings = old_pmt − new_pmt

If this number is positive, refinancing lowers your payment under the same remaining term.

### 5) Break-even point (in months) break_even_months = ceiling(Closing Costs / monthly_savings)

This tells you how many months it takes for payment savings to “pay back” the closing costs. The calculator rounds up to the next whole month.

If monthly_savings is not positive, break-even is set to 0 (because you’re not saving monthly under this setup).

### 6) Total savings over the remaining term (simple cash-flow view) total_savings = (monthly_savings × n) − Closing Costs

This is a straightforward comparison of total payments over the remaining term, minus closing costs. It’s a useful first-pass estimate, but remember: it assumes you keep the loan for the full remaining term and doesn’t model taxes or opportunity cost.

Worked examples (real numbers)

Step highlights: - n = 25×12 = 300 - Old payment ≈ 1,978.33/month - New payment ≈ 1,718.69/month - monthly savings ≈ 259.64/month - break-even point = ceil(6,000 / 259.64) = 24 months - total savings ≈ (259.64×300) − 6,000 = 71,892 (rounded)

Interpretation: If you expect to keep the mortgage longer than about 2 years, the refinance is likely to pay off on payment savings alone. Over the full 25 years remaining, the cash-flow difference is substantial.

### Example 2: Small rate drop that barely moves the needle Inputs: - Current Balance: 280,000 - Current Rate: 6.25% - New Rate: 6.00% - Remaining Years: 25 - Closing Costs: 6,000

Results (approx): - Old payment ≈ 1,842.75/month - New payment ≈ 1,803.80/month - monthly savings ≈ 38.95/month - break-even = ceil(6,000 / 38.95) = 155 months (about 12.9 years) - total savings ≈ (38.95×300) − 6,000 = 5,685

Interpretation: This is a long break-even. If you might move, refinance again, or pay off early within the next decade, this deal may not make sense—unless there are other benefits (like switching from adjustable to fixed, removing mortgage insurance, or taking cash out).

### Example 3: Lower rate, but high closing costs Inputs: - Current Balance: 280,000 - Current Rate: 7% - New Rate: 5.75% - Remaining Years: 25 - Closing Costs: 12,000

Results (approx): - Old payment ≈ 1,978.33/month - New payment ≈ 1,771.34/month - monthly savings ≈ 206.99/month - break-even = ceil(12,000 / 206.99) = 58 months (about 4.8 years) - total savings ≈ (206.99×300) − 12,000 = 50,097

Interpretation: Still positive over the long run, but you need to stay in the loan nearly 5 years to break even. High fees can turn a “good rate” into a mediocre refinance.

Pro Tips for using the calculator like a pro

Common Mistakes (and how to avoid them)

Use the calculator to answer one core question clearly: will the monthly savings and the break-even timeline fit your plans? If yes, you’re in the zone where refinancing is worth deeper review.

Authoritative Sources

This calculator uses formulas and reference data drawn from the following sources:

- HUD — Housing and Urban Development - Federal Reserve — Economic Data - CFPB — Owning a Home

This refinance calculator uses standard property formulas to compute results. Enter your values and the formula is applied automatically — all math is handled for you. The calculation follows industry-standard methodology.

• https://www.nar.realtor
• https://www.hud.gov