Mortgage Refinance Calculator

What this calculator is, and when to reach for it

Refinancing is one of the few financial decisions that is genuinely reversible in principle and genuinely expensive in practice, and the gap between those two facts is where people get caught. Replacing your mortgage with a new one can lower the payment, cut the total interest, shorten the term, or release cash. It can also quietly cost you more than it saves, and the monthly saving that makes it look attractive is precisely the figure most likely to mislead you.

The reason is the term reset. Most refinances restart the clock. Swapping twenty-five remaining years for a fresh thirty produces an appealing drop in the monthly payment, because you have spread the same debt over more time. That is not a saving; it is a rescheduling, and it usually means more interest overall despite a better rate.

This calculator compares the two loans properly. It puts the current loan and the replacement side by side on payment, on total interest, and on cost across the period you actually expect to keep the loan, which is the comparison that answers the real question.

Reach for it when rates have moved, when your credit or your loan-to-value has improved enough to unlock better pricing, when you want to shorten your term, or when you are weighing a variable loan against a fixed one.

The four honest reasons to refinance

To lower the rate, which reduces interest if you do not extend the term. To shorten the term, paying more each month and far less in total. To change the loan type, most often moving from a variable rate to a fixed one to remove uncertainty. Or to release cash from equity, which is a different transaction with different arithmetic.

What unites the sound versions is that the borrower knows which of these they are doing. Trouble usually arrives when a rate reduction is used to justify a term extension, and the resulting monthly saving is presented as though it were free.

A fifth reason, rarely stated, is simply to remove mortgage insurance once your loan-to-value has improved. That can be worth doing on its own, and it does not require the rate to have moved at all.

Where to go next

The single most important companion is the refinance break-even calculator, which finds the month at which your costs are recovered. If you will move or refinance again before that month, the deal loses money however good the rate looks.

To rank two loans across the years you actually plan to keep them, the mortgage comparison calculator is the sharper tool, and the closing costs calculator totals what switching will cost. If discount points are on the table, the points calculator tests whether buying the rate down pays back.

Check your position first with the loan to value calculator, since that determines what pricing you can access, and use the amortization calculator to see where you currently stand in the schedule. If you have a lump sum rather than a rate motive, the recast calculator may achieve what you want far more cheaply. The refinance journey walks the sequence in order.

How the comparison is worked out

Two schedules are built and compared: the loan you have, run to its existing end date, and the loan you are considering.

new principal = balance + financed costs   |   monthly saving = current payment − new payment

balance

what you owe on the current loan today

financed costs

switching costs rolled into the new loan rather than paid up front

current payment

principal and interest only, so the comparison is like for like

Costs are counted once, in the right place

Refinancing carries fees: arrangement, valuation, legal work, and sometimes an exit charge on the loan you are leaving. Costs you pay up front are counted at the start. Costs you roll into the new loan are counted inside the new balance, where they will accrue interest for the life of the loan.

That second route is popular because it requires no cash, and it is more expensive than it appears. Financing 6,000 of costs over thirty years at 5.8% means paying interest on those costs for three decades. The calculator counts them once, in whichever place you put them, so the comparison stays honest.

Why the monthly saving is the wrong headline

A lower payment can come from a lower rate, a longer term, or both, and only one of those makes the loan cheaper. Because a term reset is invisible in the monthly figure, it is entirely possible to reduce a payment by two hundred while adding tens of thousands to what the loan eventually costs.

The honest test is total interest over a shared horizon. Compare what you would pay on each loan across the number of years you genuinely expect to keep it, including any costs. That number cannot be gamed by rescheduling.

The term reset, seen clearly

If you are ten years into a thirty-year loan, you have twenty years left, and much of the interest-heavy early period is behind you. Refinancing into a new thirty-year loan sends you back to the beginning of an amortization schedule, where payments are again mostly interest.

You can avoid this entirely by refinancing into a term that matches what remains, or shorter. Many lenders offer non-standard terms for exactly this reason, and where they do not, overpaying the new loan to your original schedule achieves the same result voluntarily.

What has to be true for it to work

You need to keep the loan long enough to recover the costs, which is the break-even test. You need the new loan to be genuinely cheaper across your horizon, not merely lighter each month. And you need to qualify, since a refinance is a fresh application: income, credit, and a valuation are all assessed again.

That last point catches people whose circumstances have changed. Being an excellent payer on an existing loan does not guarantee approval on a new one.

What this page assumes

The calculator compares the current and proposed fixed-rate schedules and uses cumulative cash flow at the selected horizon.

It does not assume that a lower payment produces total savings, and excludes taxes, penalties, lender fees not entered, and country-specific rules.

Worked examples, step by step

Take a borrower with 300,000 outstanding at 7%, with 300 months remaining. They are offered 5.8% over the same 300 months, with 6,000 of switching costs.

The two loans compared over the same 300 months

This is a genuinely good refinance, and the reason is visible in the second row rather than the first. The term was kept at 300 months, so the 223.94 monthly saving is a real rate saving rather than a rescheduling. Total interest falls by 67,183 against 6,000 of costs.

Break-even arrives in month 21 once faster principal repayment is taken into account, or 6,000 ÷ 223.94 ≈ 26.8 months on the simpler cash-only measure. Either way it is around two years, so anyone confident of staying beyond that is ahead and anyone likely to move sooner is not. The break-even calculator explains why the two figures differ.

The same deal over a realistic horizon

Few people keep a mortgage for its full term. Over a seven-year horizon, the saving is 223.94 × 84 = 18,811.24, and after the 6,000 of costs the borrower is ahead by 12,811.24. Still clearly worthwhile, and a more believable number than the headline 67,183.

This is the calculation worth doing before signing anything. A refinance that looks transformative across thirty years and merely decent across seven is still worth taking; one that only works across thirty years, when you expect to move in five, is not.

What the term reset would have done

Had the same borrower taken 5.8% over a fresh 360 months instead of 300, the monthly payment would have fallen further and looked more attractive still. But they would be paying for five extra years, on a debt they were already twenty-five years from clearing.

The monthly figure improves, the total worsens. Whenever a refinance quote extends your term, insist on seeing total interest across a fixed horizon before judging it.

The vocabulary, on and around this page

Refinance

Replacing an existing mortgage with a new one, usually to change the rate, the term, or the loan type, or to release cash.

Break-even point

The month at which accumulated savings equal the cost of switching. Beyond it the refinance is ahead; before it, it is behind.

Term reset

Restarting the loan over a fresh full term. It lowers the monthly payment while usually increasing total interest.

Closing costs

Fees to arrange the new loan, such as valuation, legal work, and arrangement fees, plus any exit charge on the old one.

Financed costs

Switching costs added to the new balance rather than paid up front. They then accrue interest for the life of the loan.

Horizon

How long you realistically expect to keep the loan. It is the period over which any comparison should be judged.

Rate and term refinance

A refinance that changes the rate, the term, or both without taking additional cash. Usually the cheapest type to arrange.

Cash-out refinance

Borrowing more than the current balance and taking the difference in cash. It raises loan-to-value and often the rate.

Note rate

The interest rate the payment is calculated from, as distinct from the APR, which folds in certain fees for comparison.

APR

A single figure combining rate and certain costs to compare offers. Useful for ranking loans, not for calculating a payment.

Discount points

An optional up-front fee to secure a lower rate, where one point costs one percent of the loan. Worth it only over a long enough horizon.

Prepayment penalty

A charge on the existing loan for repaying it early. Where it applies it belongs in the cost of switching.

Loan to value

The loan as a percentage of the property value. It determines the pricing available and whether insurance is required.

Recast

Re-amortizing the existing loan after a lump sum to lower the payment. Far cheaper than refinancing where the goal is only a smaller payment.

Total interest

All interest across the life of a loan. The figure that reveals whether a refinance is genuinely cheaper.

Outstanding balance

What you owe today. It becomes the principal of the new loan, plus any costs you choose to finance.

Escrow

Tax and insurance collected with the payment. Existing escrow is usually refunded and re-established on the new loan.

Fixed and variable rates

A fixed rate holds for the term; a variable rate can move. Switching between them is a common reason to refinance.

Underwriting

The lender’s full assessment of a new application. A refinance is not automatic, whatever your record on the current loan.

Streamlined refinance

A reduced-documentation process offered under some programmes, typically with lower costs and no new valuation.

Common mistakes, and what this page will not do

• Judging the deal by the monthly saving. A lower payment can come from a longer term rather than a better rate. Total interest across a fixed horizon is the honest test.
• Accepting a term reset without noticing. Refinancing ten years into a loan back to a fresh thirty adds years to a debt you were already part way through clearing.
• Treating financed costs as free. Rolling fees into the balance avoids cash today and accrues interest on them for decades. They are cheaper paid up front where possible.
• Ignoring how long you will actually stay. If you move before break-even, the refinance loses money regardless of how good the rate looked.
• Forgetting the exit charge on the current loan. Some loans penalise early repayment. That charge belongs in the switching cost and can move break-even substantially.
• Comparing a note rate against an APR. They measure different things. Compare like with like, or the offer with more fees can appear to be the better one.
• Assuming approval is a formality. A refinance is a fresh application with a new valuation and full underwriting. A perfect record on the existing loan guarantees nothing.
• Refinancing when a recast would do. If the goal is only a lower payment after a lump sum, a recast keeps your rate and end date and costs a fraction as much.
• Overlooking that cash-out changes the pricing. Releasing equity raises loan-to-value and frequently the rate, on the entire balance rather than just the amount released.

What this calculator leaves out: This calculator does not include property tax, insurance, or association charges, quote or verify any lender’s rate, model mortgage insurance, apply tax treatment of mortgage interest, predict rate movements on variable loans, or assess whether you would be approved. It compares two fixed-rate schedules from the figures you enter.

Frequently asked questions