Is refinancing your mortgage worth it? See your monthly savings, break-even month, and total interest saved over the life of the loan — before you commit.
Refinancing only makes sense if you plan to stay in the home long enough to recoup the closing costs through monthly savings. If your break-even is 18 months and you plan to stay 10 years, it's a clear win. If your break-even is 5 years and you might move in 3, it's probably not worth it.
A common rule of thumb: refinancing makes sense when you can drop your rate by at least 1 percentage point and you plan to stay in the home past the break-even date. But this calculator gives you the actual math — more reliable than any rule of thumb.
The old rule of thumb — refinance when rates drop 1% — oversimplifies the decision. Whether refinancing makes sense depends on the rate reduction, your remaining loan balance, closing costs, and how long you plan to stay in the home. The break-even point is the number of months it takes for monthly savings to offset closing costs. If you'll stay in the home beyond that break-even, refinancing makes financial sense.
Closing costs on a refinance typically run 2% to 5% of the loan balance — on a $400,000 mortgage, that's $8,000 to $20,000. If refinancing saves you $300 per month, your break-even is 27 to 67 months. If you're planning to move in three years, the high end of that range means refinancing could cost you money. Always calculate break-even before committing to a refinance, regardless of how attractive the new rate looks.
A cash-out refinance replaces your current mortgage with a larger one, with the difference paid to you in cash. It's a way to access home equity for renovations, debt consolidation, or investment. The tradeoff is a higher loan balance, potentially a higher rate (cash-out rates are slightly higher than rate-and-term rates), and resetting your amortization clock. It makes most sense when the proceeds fund something with a return higher than your mortgage rate.
A rate-and-term refinance changes your interest rate, loan term, or both without changing the principal balance. It's the simplest and least expensive type. A cash-out refinance increases your balance to extract equity. A streamline refinance — available for FHA, VA, and USDA loans — offers a simplified process with reduced documentation requirements and sometimes no appraisal. Each serves a different purpose and has different cost and qualification requirements.
Refinancing into a new 30-year mortgage when you have 22 years left on your current loan extends your payoff date and increases total interest paid, even if the monthly payment drops. If your goal is to pay off the home faster, refinancing into a 15-year term typically offers a lower rate plus faster paydown — but with a higher monthly payment. Make sure the term aligns with your goals, not just the rate.
The rate you're offered on a refinance depends heavily on your credit score, loan-to-value ratio, and debt-to-income ratio. Borrowers with 760+ credit scores typically receive the best conventional rates. Each 20-point drop below that tier can add 0.25% to 0.5% to your rate. A loan-to-value above 80% usually triggers private mortgage insurance, which adds to your effective cost. Shopping multiple lenders matters — rate differences of 0.25% to 0.5% between lenders are common.