Refinance Calculator

How to use this tool

“Break even on a refinance” takes your balance, rate and time left, then the new rate, term and costs, and shows the payment change, the break even month and the saving over the whole loan. “Same term against a new term” puts a new loan over the months you have left beside the one you chose. The other modes cover cash out, US against Canadian compounding, and rate cuts against costs. If you know your payment but not the years left, choose “my current payment”.

The input people most often get wrong is the time left. Enter the years and months remaining, not the original term: a 30 year mortgage paid for three years has 27 years left, and using 30 makes the current payment look lower than it is. Put any prepayment penalty or discharge fee in its own box, and leave the years you plan to stay empty if you do not know.

What the calculation is doing

Every fixed payment loan has one level payment: balance × r ÷ (1 − (1 + r) to the power −n), where r is the monthly rate and n the number of months. The tool works it out for the current loan and the new one, and the difference is the monthly saving. Net lifetime savings are the interest left on the current loan, minus the interest on the new loan, minus the costs.

Break even is found two ways. Costs ÷ monthly saving gives a decimal number of months, and a month by month schedule finds the first month where the payments saved exceed the costs. If the costs are added to the loan, the schedule waits until the payments saved exceed the extra balance you owe.

For a US loan r is the annual rate ÷ 12. A Canadian fixed rate compounds twice a year. Section 6 of the Interest Act requires the rate on a blended payment mortgage to be stated as calculated yearly or half yearly, not in advance, and the FCAC sample disclosure says the interest is “compounded twice per year but charged monthly”. So r = (1 + annual rate ÷ 2) to the power 1/6, minus 1. At 6.75% that is 0.5547% a month against 0.5625%, which lowers the current payment from $2,014.80 to $1,996.83 and the new one from $1,750.72 to $1,737.84, roughly 0.7% to 0.9%.

Why break even is the whole decision

A refinance trades a fixed cost now for a smaller payment every month afterwards. Freddie Mac puts the test in one line: divide the total cost by your monthly savings. The Federal Reserve guide works it for a $200,000 loan cut from 6% to 5% with $2,500 of costs, and at a 28% tax rate its $91 a month of after tax saving takes 27 months to recover.

How long you stay is the other half. Freddie Mac says that if you may move in two years but need three to recoup the cost, it probably does not make sense. The default case is $300,000 at 6.75% with 27 years left, refinanced at 5.75% over 30 years with 3% costs. The $9,000 is recovered in month 35, so after two years the payments saved are $2,662 short of the costs, and after five years they are $6,845 past them.

No source checked for this tool gives a rule of thumb for how far the rate must fall, so none is stated here; they all give the break even test. The Federal Reserve and Freddie Mac put costs at 3% to 6% of the loan. In the table below, at 3% costs, half a point breaks even in 94 months, one point in 48 and two points in 25.

The term reset trap

Refinance a loan with 27 years left into a new 30 year loan and the payment falls for two reasons: the rate is lower and the payments are spread over three more years. Freddie Mac says extending the term means paying more interest, Fannie Mae adds that you build equity more slowly, and the FCAC gives the same warning.

On the default case the current payment is $2,014.80 and a new 30 year loan costs $1,750.72, a saving of $264.08 that nets $13,537 after costs. The same 5.75% over the 27 years left costs $1,825.41, which is $74.69 more a month, yet nets $52,364. Resetting the clock trades $38,827 of lifetime saving for a smaller bill. If the goal is to ease the budget that can be a fair price. If it is to save money, ask for the years you have left.

The 30 year line peaks at $76,563 in month 324, when the old loan would have ended, then falls to $13,537 at year 30 because you are repaying a loan you would not otherwise have. A bigger reset can turn a gain into a loss: $200,000 at 7% with 25 years left, refinanced into 30 years at 6% with 3% costs, breaks even in month 28 and still loses $13,609 over the loan.

No cost loans, rolled in costs and penalties

A no cost refinance still has a cost; it moves it. The CFPB describes two ways: a higher interest rate with a credit that covers the costs, or costs added to the loan amount. The higher rate means you pay more over time, and the higher loan means larger payments and less equity.

Over the same 27 years, 5.75% with $9,000 of costs paid up front has a payment of $1,825.41, while 6.25% with no costs is $1,919.05. The $9,000 buys $93.64 a month, so paying it wins only if you keep the loan more than about 96 months. Rolling the costs in moves the break even to month 46 and cuts the lifetime saving to $3,629, because the borrowed costs collect interest for 30 years.

Enter a prepayment penalty or discharge fee separately and it is added to the costs. The FCAC says breaking a closed mortgage normally brings a penalty that can cost thousands of dollars, and a blend and extend arrangement usually carries none.

Cash out, and what this leaves out

Cash out hides its cost behind a lower rate. Taking $40,000 out of the default case gives a payment of $1,984.15, which is $30.65 less than now, yet the loan grows from $300,000 to $340,000, interest and costs rise by $31,697 against the current loan, and on a $450,000 home the loan to value ratio goes from 66.7% to 75.6%. The FCAC says you can usually borrow up to 80% of a home’s value.

This is planning arithmetic, not a lender quote or advice. It works before tax, and the Federal Reserve worksheet shows the effect: its example takes about 20 months before tax and 27 after. It ignores rate locks, which the CFPB says typically run 30, 45 or 60 days, and any change in appraisal, insurance or property tax.

Break even months by rate cut and closing costs

Months to break even for $300,000 at 6.75% with 27 years left, refinanced over the same 27 years so only the rate and the costs change. Costs are a percentage of the balance, so with no penalty the months are the same at any balance. Green cells pay back within 36 months.

Every extra percent of costs adds about the same number of months, and doubling the cut roughly halves them. A quarter point with 5% costs takes 312 months, which is 26 years and nearly the whole loan.

A worked example you can check on paper

Take $300,000 at 6.75% with 324 months left, refinanced at 5.75% over 30 years with 3% costs. The current monthly rate is 0.0675 ÷ 12 = 0.005625, and 1.005625 to the power −324 = 0.162449, so the payment is 300,000 × 0.005625 ÷ (1 − 0.162449) = $2,014.80. The new monthly rate is 0.0575 ÷ 12 = 0.0047917, and (1 + 0.0047917) to the power −360 = 0.178909, so the payment is 300,000 × 0.0047917 ÷ (1 − 0.178909) = $1,750.72. Costs are 3% × 300,000 = $9,000.

Monthly saving = $2,014.80 − $1,750.72 = $264.08. Break even = 9,000 ÷ 264.08 = 34.1 months, so month 35 is the first where the savings, 35 × 264.08 = $9,242.91, exceed $9,000. Interest left on the current loan is $2,014.80 × 324 − 300,000 = $352,796, and on the new loan $1,750.72 × 360 − 300,000 = $330,259. Net lifetime saving = $352,796 − $330,259 − $9,000 = $13,537.

The same 5.75% over the 27 years left gives $1,825.41, a saving of $189.39, a break even of 9,000 ÷ 189.39 = 47.5 months, and a net saving of $352,796 − $291,432 − $9,000 = $52,364.

Mistakes that catch people out

Entering the original term. The tool needs the time left. A 30 year mortgage in its fourth year has 27 years left, and using 30 understates the current payment and overstates the gain.

Comparing payments instead of total cost. A payment that falls by $264 a month can cost $38,827 more overall. Check the same term result before accepting a reset.

Leaving out the penalty and discharge fee. The new lender’s costs do not include what the old lender charges to end the loan. Add it in its own box.

Forgetting the interest on rolled in costs. Adding $9,000 to the loan feels painless, but it collects interest for the whole term.

Ignoring how long you will stay. If you may sell before the break even month, the refinance loses money whatever the rate.

Popular calculations

Each opens the calculator with those figures filled in. Unless shown otherwise they use a new 30 year loan, 3% costs paid up front and US monthly compounding.

Break even at a one or two point cut

Costs rolled in, penalties and how long you stay

Same term against a new term

Cash out refinance

Canadian semi annual compounding

Break even tables

How this was checked

The payment formula was tested against a month by month amortization on 4,000 random loans under both compounding conventions. The final balance came to zero within $0.00001 and the interest matched payment × months − balance to the same tolerance. Break even was checked on 3,000 random refinances, where the schedule, a brute force search and ceil(costs ÷ savings) agreed every time, and on 3,000 more with costs rolled in against an independent implementation using closed form balances.

Published figures were reproduced. Federal Reserve: $1,199.10 and $1,073.64 on $200,000 at 6% and 5% (printed as $1,199 and $1,073), and the $231,640 and $94,120 interest totals. Freddie Mac: all five payments on $300,000 from 6.15% to 6.75%. CFPB sample Loan Estimate: $737.91 and $13,788 of principal repaid in five years. FCAC: $1,482.02 and $144,606.01 at 3.4%, eight of nine rows of its 25 year table exactly, and the $3,033, $2,214, $1,813 and $1,578 payments at 4%. The one row that differs prints $1,587.06 at 4.0%, which contradicts its own interest column. Monthly compounding gives $1,485.83 at 3.4%, so its figures confirm the semi annual convention. Every chip address was loaded and checked for a distinct title, a matching canonical address and no NaN.

Common questions

How do you calculate the break even point on a refinance?

Divide the total costs, including any prepayment penalty, by the monthly saving in payment. On the default case that is $9,000 ÷ $264.08 = 34.1 months, so month 35 is the first where the savings exceed the costs.

Is refinancing into a longer term ever a good idea?

Yes, when the goal is a smaller payment and you accept a higher total cost. The FCAC says to think twice before extending amortization, because the extra interest can reach tens of thousands of dollars. Here a new 30 year term nets $13,537 against $52,364 for the 27 years left.

Should I roll the closing costs into the new loan?

Rolling them in avoids cash at closing, but you repay them with interest, as the Federal Reserve guide notes. On the default case it moves the break even from month 35 to month 46 and cuts the lifetime saving from $13,537 to $3,629.

Why is a Canadian payment lower than a US payment at the same rate?

Canadian fixed rates compound twice a year, so the monthly rate is (1 + r ÷ 2) to the power 1/6, minus 1, which is slightly below r ÷ 12. On $300,000 at 6.75% over 27 years the payment is $1,996.83 that way and $2,014.80 with monthly compounding.

How much do refinancing costs run?

The Federal Reserve guide and Freddie Mac both say 3% to 6% of the loan, which is $9,000 to $18,000 on $300,000. Ask for a written estimate, and add any prepayment penalty or discharge fee yourself.

Does a cash out refinance make sense?

Only if the cash is worth more than it costs. Fannie Mae says cash out is likely to reduce your equity, extend the payoff and raise total interest. Taking $40,000 out of the default case adds $31,697 in interest and costs even though the payment falls by $30.65 a month.

Related Calculators and Reference

• Mortgage Calculator: the full monthly cost of the new loan, with tax and insurance.
• Loan Payment Calculator: the month by month amortization schedule for any fixed payment loan.
• Home Affordability Calculator: how a lower payment changes the price you can carry.
• Rent vs Buy Calculator: the other big housing decision, and how long to stay for buying to win.
• Present Value Calculator: what savings that arrive years from now are worth today.
• HELOC Calculator: a home equity line as another way to borrow against equity without replacing the mortgage.
• Closing Costs Calculator: the full cash to close on a refinance, itemized like the Loan Estimate.
• Mortgage Points Calculator: the break even on discount points or a lender credit, with the APR.
• Federal Reserve: A Consumer’s Guide to Mortgage Refinancings: the break even worksheet and the costs to expect.