What's a typical closing cost?

Usually 2–5% of the loan amount. On a $280k loan that's $5,600–$14,000. Some lenders offer "no-closing-cost" refinances by rolling fees into a slightly higher rate.

How much rate drop justifies a refinance?

Old rule was 1%. With current closing costs, even 0.5% can be worth it if you stay long enough — let the break-even number decide.

What are typical refinance closing costs?

Refinance closing costs run 2-5% of the loan balance — origination fee, appraisal ($400-700), title insurance, credit check, and government recording fees. On a $300,000 loan that is $6,000-$15,000. You can roll them into the new loan (higher principal) or pay cash at closing. The calculator uses your entered closing-cost figure to compute the true break-even point.

Should I do a cash-out refinance?

Cash-out refi taps home equity at mortgage rates, which are far below credit card or personal loan rates. Makes sense for high-interest debt consolidation or a big renovation. Avoid it for consumption spending (car, vacation) — you are converting unsecured or short-term debt into a 30-year secured debt against your home, which multiplies total interest paid.

When does refinancing NOT make sense?

Three cases: (1) you plan to sell within the break-even window (usually 2-4 years), (2) your new rate is less than 0.5% below your current rate — closing costs eat the savings, (3) you would reset a 30-year clock when you only have 10-15 years left. In the last case, refinance to a shorter term (10 or 15 years) instead of a fresh 30.

Refinance Calculator — embedded

Result

Monthly savings

$345.17

Current loan balance$280,000.00
New loan balance$280,000.00Healthy
Current monthly payment$2,069.18
New monthly payment$1,724.01
Total closing costs$4,500.00
Break-even months14 months (1.2 yrs)
Lifetime cost — current$620,752.59
Lifetime cost — new + fees$625,142.94
Lifetime savingspositive = refinance wins-$4,390.35

Refinance loses money over loan life— Break-even at month 14 (~1.2 yrs).

Keep current loan

$2,069.18/mo · $620,752.59 lifetime

Refinance to new rate

Closing costs $4,500.00 included.

$1,724.01/mo · $625,142.94 lifetime

Break-even

Stay past this point for the refi to net positive.

14 months

Rule of thumb

No-closing-cost options trade closing fees for slightly higher rate.

Old: 1% rate drop. Modern: any drop if you stay past break-even.

Source: CFPB — Should you refinance? (consumer guidance + break-even methodology); Freddie Mac Primary Mortgage Market Survey (PMMS) for current-rate context.

Not financial advice — Lifetime-cost comparison assumes you hold each loan to maturity. Real refinances often re-amortize you to year-1 of a new schedule, increasing total interest even at a lower rate. Cash-out refi changes the math. Doesn't model PMI, prepayment penalties, or tax effects of mortgage interest deduction.

How to use this calculator

Enter your current loan balance, rate, and years remaining.
Type the new rate you've been quoted and the new term.
Add the lender's estimated closing costs (often 2–5% of loan).
Check the break-even — only refinance if you'll stay past that point.

About this tool

Refinancing is a bet: you pay closing costs upfront in exchange for a lower monthly payment over the new loan's life. The two numbers that matter are the break-even month (how long until the monthly savings cover the closing fees) and the lifetime savings (does the deal still win once you account for the longer term you're probably extending into?). Rule of thumb: if you'll stay in the home longer than the break-even period and the lifetime savings are positive, refinance. If either fails, stick with the current loan.

What this calculator does

Compares your current mortgage against a proposed refinance and shows monthly savings, break-even months on closing costs, and total lifetime cost with vs without the refi. Handles rate-and-term refinances (change rate/term only) and cash-out refis (increase loan amount).

How it works — the formula

New payment = amortization(new balance, new rate, new term)
Monthly savings = old payment − new payment
Break-even months = closing costs ÷ monthly savings

Standard amortization formula applied to the proposed loan terms. Break-even months is the point at which cumulative monthly savings equal the up-front closing costs, after which the refi is net-positive.

Sources: CFPB — Mortgage Refinance Basics · Freddie Mac — Primary Mortgage Market Survey

Worked examples

Example 1

Rate reduction with same remaining term

Inputs:: balance = $300,000, current rate = 7.5%, remaining term = 25 years, new rate = 6.25%, new term = 25 yrs, closing = $6,000
Output:: Old payment $2,217/mo, new payment $1,979/mo, saves $238/mo. Break-even at 25 months.

Classic same-term refi. Keep the loan past month 25 and the refi is net-positive; sell or move before month 25 and you lose the closing costs.

Example 2

Extending term to lower payment

Inputs:: balance = $250,000, current rate = 7%, remaining term = 20 years, new rate = 6.5%, new term = 30 yrs, closing = $5,000
Output:: Old payment $1,938/mo, new payment $1,580/mo, saves $358/mo but adds 10 years of payments.

Total interest paid over the new 30-year loan far exceeds the 20-year remaining schedule. Term extension makes short-term budget sense but is a bad long-term decision unless clearly necessary.

Example 3

Cash-out refi for home improvement

Inputs:: balance = $200,000, home value = $400,000, cash-out = $50,000, new balance = $250,000, rate 6.75%, 30 yrs, closing = $8,000
Output:: New payment $1,621/mo. $50K available at ~7% amortized over 30 years.

Cash-out at 6.75% amortized over 30 years costs about $150/mo per $25K extracted — cheaper than a personal loan for the same amount, but the borrower pays it over 30 years instead of 5.

When refinancing makes sense

The classic refinance rule of thumb: a rate reduction of at least 0.75-1 percentage point makes economic sense if you plan to keep the loan long enough to recover closing costs. Below 0.5 points, the savings rarely justify the friction and closing costs. Above 1 point, refinancing usually clears break-even within 2-4 years.

Modern refinancing decisions consider more than rate. Removing PMI when your loan-to-value falls below 80%, converting an adjustable-rate mortgage to fixed before a rate reset, cashing out equity for a productive use, or consolidating a first mortgage with a home equity line into a single new loan are all valid refi triggers even when the headline rate change is modest.

Source: CFPB — Understanding refinancing options

Break-even math in detail

The break-even calculation is straightforward: divide up-front closing costs by monthly savings to get break-even months. If closing costs are $6,000 and the refi saves $200/month, break-even is 30 months. Keep the loan past month 30 and the refi is a net win; sell or refinance again before then and you lose money.

Refine the analysis by comparing total-cost-to-payoff rather than monthly cost. A "$200/month savings" refi that adds 5 years to the loan term may actually cost more in total interest despite the lower monthly payment. Always look at total interest projected under both scenarios, not just the monthly-payment difference.

For borrowers who will likely refinance again within a few years (rate cycles happen), consider a no-closing-cost refi option where the lender rolls fees into a slightly higher rate. Break-even is instant (zero closing cost paid up front), and if you refi again in 3 years, you have not sunk cash into fees you never recovered.

Rate-and-term vs cash-out refinance

A rate-and-term refinance simply changes the loan's interest rate, term, or both. The loan balance stays the same. This is the most common refi type and generally carries the lowest rates.

A cash-out refinance replaces your existing mortgage with a new, larger mortgage and pays the difference to you in cash. It converts home equity into liquid funds. Rates are typically 0.25-0.5 point above rate-and-term refis of the same term, and loan-to-value limits are stricter (typically 80% max on conventional cash-out).

Cash-out uses that make economic sense: home improvements that add value, high-interest debt consolidation (credit cards, high-rate personal loans), education. Uses that generally do not: vacations, weddings, luxury purchases. The math principle: only cash-out if the extracted funds are used for something with a higher return than the mortgage rate.

The tax treatment change

Mortgage interest deductibility changed materially with the Tax Cuts and Jobs Act of 2017 and remains in effect for 2026. Interest is deductible on up to $750,000 of "acquisition debt" (used to buy, build, or substantially improve the home) for loans originated after Dec 15, 2017. Older loans grandfathered under the pre-TCJA $1M limit remain deductible up to that amount.

Cash-out refi proceeds used for anything OTHER than home improvement are NOT tax-deductible — the interest on that portion of the loan is treated the same as personal loan interest for tax purposes. Many refinances become mixed acquisition debt / non-acquisition debt loans requiring careful tracking.

Combined with the higher standard deduction ($30,000 for MFJ in 2026), only about 10% of taxpayers itemize under current law. If you take the standard deduction, mortgage interest tax savings are effectively zero — do not include them in your refinance benefit calculation.

Source: IRS Publication 936 — Home Mortgage Interest Deduction

The refi churn trap

Some homeowners refinance repeatedly, chasing every rate drop. This can leave the borrower worse off overall despite the appearance of a "better rate" each time. Each refinance restarts the amortization clock, and each refinance costs 2-5% of loan amount in closing costs.

A useful discipline: never refinance more often than every 2-3 years. If rates drop again shortly after a refi, wait — most closing costs need at least 24-36 months to recover, and a second refi within 12-24 months of the first almost never clears net-positive.

The no-refi alternatives

Two situations where the refi decision seems obvious but a different move is often better:

When you want lower payments but plan to move within 5 years: keep the existing loan and prepay principal aggressively instead. Extra principal payments give you the interest-reduction benefit without the closing costs, and preserve the sunk-cost benefit of your existing loan's aging amortization.

When you want to eliminate PMI: request PMI cancellation once loan-to-value hits 80% of the original purchase price (based on the amortization schedule) or the appraised value has grown enough that current LTV is below 80%. This does not require a refinance and costs only a $300-500 appraisal.

Limitations

Assumes fixed-rate refinance to fixed-rate. Adjustable-rate refis (ARM) require different rate-forecast assumptions not modeled.
Does not model tax deductibility of mortgage interest — the actual after-tax savings for itemizers may differ.
Closing costs vary widely (2-5% of loan) and include lender fees, appraisal, title insurance, escrow setup — check the Loan Estimate for your specific quote.
Does not account for opportunity cost of the closing-cost cash if invested elsewhere.

Refinance projections are estimates. This calculator does not provide financial advice — request an official Loan Estimate from your lender for the figures that will appear in closing documents.