How to use the refinance calculator
- Find your remaining balance, current rate and the time left on your loan in your latest mortgage statement.
- Enter the rate and term from the refinance offer. Use the same number of years left if you want a like-for-like comparison.
- Add every closing cost: lender fees, appraisal, title, recording and any prepayment penalty on the old loan.
- Tick the box if the lender will add those costs to the new balance rather than collecting them at closing.
- Read the break-even month and the lifetime figure together before deciding.
The maths behind the break-even point
Both payments come from the standard amortization formula, using the balance you owe today rather than the original loan amount:
Worked example
You owe $280,000 at 7.25% with 27 years left, so your payment is $1,971.74. A lender offers 6.0% over the same 27 years with $6,000 in costs. The new payment is $1,747.16, a saving of $224.58 a month.
$6,000 ÷ $224.58 = 26.7, so you break even in month 27, a little over two years in. If you keep the loan to the end, the total saved after costs is $66,767.72.
Why a lower payment can still cost more
Run the same offer over a fresh 30-year term instead of 27. The payment drops further, to $1,678.74, and break-even arrives sooner, in month 21. But the lifetime saving shrinks to $28,498.88, because you have added three extra years of interest. A refinance that resets the clock lowers the bill today and raises the total cost. The “payoff change” box flags this whenever the new loan runs longer than the old one.
Rolling the costs into the loan has a similar effect. Nothing is paid at closing, but you pay interest on the fees for the whole term.
Key features
- Uses your remaining balance and remaining term, so the comparison reflects where you are now.
- Break-even month with the matching calendar date.
- Lifetime comparison that includes upfront costs.
- Chart of your cumulative net position over the life of the loan.
Practical use cases
US homeowners often hear a rule of thumb that a refinance needs to cut the rate by at least one point. The break-even month is a better test: if you expect to sell or move before it arrives, the refinance loses money.
UK borrowers usually remortgage when a fixed-rate deal ends and the loan moves to the lender’s standard variable rate. Enter the SVR as the current rate and the new deal’s product fee as the cost. Switching during a fixed period can trigger an early repayment charge, often a few percent of the balance, so include it.
Canadian borrowers breaking a fixed term early may owe three months’ interest or an interest rate differential penalty, whichever is higher. Ask your lender for the exact figure and add it to the costs.