Find out if refinancing your mortgage makes financial sense — calculate your monthly savings, break-even date, and total lifetime interest savings.
| Horizon | Current Loan Cost | New Loan Cost | Net Savings | Worth It? |
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* Costs include closing costs on the new loan. Negative savings mean refinancing has not yet paid off within that horizon.
The classic rule of thumb says to refinance when you can drop your interest rate by at least 1 percentage point. That rule is a useful starting point, but it ignores two critical variables: how much you'll pay in closing costs, and how long you plan to stay in the home. The real test is the break-even calculation — how many months of savings does it take to recover the cost of refinancing? If you plan to stay longer than the break-even period, refinancing is worth it. If you'll sell or move before break-even, you lose money on the deal even if the rate is lower.
Closing costs on a refinance typically run 2–5% of the loan amount, or $4,000–$12,000 on a $250,000 balance. A lender offering you a "no-closing-cost" refinance is rolling those costs into a slightly higher rate — you'll pay them eventually through a higher monthly payment, just not upfront. Neither approach is universally better; it depends on how long you stay and what you can afford out of pocket at closing.
A rate-and-term refinance replaces your current mortgage with a new one at a better interest rate or shorter term (or both). The loan balance stays the same (you don't receive cash). This is the most common type and usually the easiest to qualify for, since lenders see it as lower risk. A cash-out refinance takes out a new mortgage for more than you currently owe, and you pocket the difference as cash. This is useful for funding large improvements, paying off high-interest debt, or buying investment property — but it increases your loan balance and restarts (or extends) your amortization schedule. Cash-out refis often carry slightly higher rates than rate-and-term refis.
One of the most overlooked costs of refinancing is resetting your loan term. If you're 6 years into a 30-year mortgage and refinance into a new 30-year loan, you've extended your total payoff from year 30 to year 36 — you're adding 6 years of payments. Even if your monthly payment drops, you may pay more total interest over the life of the loan. Refinancing into a shorter term (15 or 20 years) avoids this problem and can dramatically reduce total interest paid, though it usually means a higher monthly payment. This calculator shows both scenarios so you can compare apples to apples.
If you don't have cash available to pay closing costs out of pocket, most lenders will let you roll them into the new loan balance. On a $280,000 refi with $5,500 in closing costs, your new loan would be $285,500. This approach eliminates the upfront hit but means you pay interest on those closing costs for the life of the loan. It also slightly reduces your home equity at close. The calculator's cash-out field handles this scenario — enter closing costs as a cash-out amount to model rolling them in.
If your current loan has private mortgage insurance because your original down payment was less than 20%, and your home has since appreciated enough to push your LTV below 80%, a refinance can eliminate PMI while also potentially lowering your rate. PMI typically costs 0.5–1.5% of the loan balance annually, so removing it can add $100–$300/month in savings that are not captured in a simple rate comparison. Factor PMI savings into your monthly savings figure for a more accurate break-even calculation.
Break-even months = closing costs ÷ monthly payment savings. If your closing costs are $6,000 and you save $200/month with the new rate, you break even in 30 months (2.5 years). If you plan to stay in the home longer than 30 months, refinancing saves you money over the long run. If you might move sooner, the upfront cost is not recovered.
Not always. On a large loan balance ($400,000+), even a 0.5% drop can produce enough monthly savings to justify closing costs within 2–3 years. On a small remaining balance (under $100,000 with only a few years left), even a 2% drop may not produce enough monthly savings to recover $4,000–$8,000 in closing costs before the loan is paid off. Always run the break-even calculation for your specific numbers.
Closing costs on a refinance typically include origination fees (0.5–1% of loan), appraisal ($400–$700), title insurance ($500–$2,000), recording fees ($50–$500), and prepaid items like homeowner's insurance and property tax escrow. Total costs usually run 2–5% of the loan amount. Shopping at least 3 lenders and comparing Loan Estimates is the single most effective way to reduce this number.
A 15-year mortgage typically carries a 0.5–0.75% lower rate than a 30-year loan and pays off in half the time. The trade-off is a substantially higher monthly payment. If you can comfortably afford the higher payment without straining your cash flow, the 15-year option can save tens of thousands in interest over the life of the loan. Use the calculator above to compare the total cost of a new 15-year loan versus a new 30-year loan at your rates.
Most conventional lenders require a minimum credit score of 620 to refinance, but you'll get the best rates with a score of 740 or higher. FHA streamline refinancing can be done with lower scores (580+), but requires that you stay with an FHA loan. The rates shown in your refinance quotes will vary significantly by credit tier — a borrower with 760 may receive a rate 0.5–0.75% lower than one with 680, which meaningfully changes the break-even math.