What refinancing actually changes
Refinancing swaps your current mortgage for a new one, using the new loan to pay off exactly what you still owe on the old one. Nothing about the property changes; a new lender, or the same one on new terms, sets a new rate, a new term and its own closing costs, and the balance carried forward is whatever was owed the moment the old loan was paid off, not the amount first borrowed years ago. That is why this calculator asks for the remaining balance, the remaining term and the rate being paid right now, rather than the original loan amount and start date: the remaining balance already contains everything about the old loan that matters to today's decision.
A repayment loan's monthly payment comes from one formula, the same one behind a standard mortgage or amortising loan:
This calculator runs that formula twice: once on your current balance, rate and remaining term to find what you are paying now, and again on the new loan, its own rate, its own term and whatever balance the new loan actually carries, to find the new payment. Feed the numbers in the calculator's own defaults through it and the figures check out: 200,000 remaining at 6% with 25 years left gives a current payment of 1,288.60 a month; refinanced to 5% over a fresh 30 years it becomes 1,073.64 a month, a saving of 214.96 every month.
Working out the breakeven point
Closing costs are the price of getting the new loan at all: lender fees, an appraisal, title work and similar charges due at completion, whether paid in cash or added to the new balance. The standard way to judge whether they were worth paying is the breakeven point, the month the monthly saving has added up to exactly cover them:
On the defaults above, 3,000 in closing costs divided by a 214.96 monthly saving comes out at just under 14 months. Stay in the home and keep the loan past that point and the refinance has paid for itself; move or refinance again sooner and it has not. This is the rule almost every refinance calculator on the web uses, and it is a genuinely useful first check, but it only tracks cash out of pocket against cash saved each month. It says nothing about whether the loan as a whole, added up from today until it is paid off, actually costs less. That question needs the table further down the page, not this one formula.
The trap a payment-only view hides
A lower monthly payment after refinancing can come from two very different places, and only one of them is really saving money. It can come from a genuinely lower rate, which reduces the interest charged on every future payment. Or it can come from resetting the clock: swapping the years already paid down on the old loan for a brand new term, so the same balance is spread over more months and each one is smaller, even if the rate barely moved or went up. Both show up on a statement as "your payment went down"; only the first one is actually cheaper borrowing.
Run the defaults through the lifetime interest table below and this shows up directly. Keeping the current loan to the end costs 186,581 in interest. Refinancing into a fresh 30-year term at the lower rate drops the payment by 214.96 a month, and the interest on that new loan alone comes to about 186,512, virtually unchanged; only once the 3,000 in closing costs is added does the honest total land at roughly 189,512, about 2,930 more than simply keeping the loan. The lower rate is real, but stretching 25 remaining years back out to 30 gives interest an extra five years to build on top of it, and here that extra time outweighs the rate cut once costs are counted. Refinancing into the same 25-year term already left on the old loan tells a different story: interest drops to about 150,754, a genuine saving of roughly 35,800, because the rate improvement does its work without also lengthening the loan. That same-term row isolates what the rate change alone is worth, with the term reset held constant.
None of this means a fresh term is always the wrong choice. A smaller payment can matter more than the lifetime total if the monthly budget is genuinely tight, and that is a legitimate reason to refinance on its own. The point is only that "the payment went down" and "this costs less overall" are two different claims, and a calculator that only reports the first one is not telling the whole story.
Paying closing costs in cash or rolling them in
Closing costs do not have to be paid upfront. Most lenders allow them to be added to the new loan balance instead, so nothing is due at completion. That convenience has a real cost, not just an accounting one: rolling costs in enlarges the balance the new loan charges interest on for its entire term, so a 3,000 fee added to the loan does not stay a flat 3,000, it accrues interest for as long as the loan runs. Paid in cash, that 3,000 is spent once and stops there. This calculator's roll-in toggle changes the actual maths, not just a label: the new loan amount, the new payment and every figure downstream of it shift to match whichever choice is made.
Rate-and-term versus cash-out refinancing
Everything above describes a rate-and-term refinance: a new loan sized to replace what is currently owed, changing only the rate, the term, or both. A cash-out refinance is different: the new loan is deliberately sized larger than the old payoff amount, and the difference is paid to the borrower as cash at closing, using the property's equity as security. It is a genuine way to access that equity, but the extra amount is real debt at the new loan's rate and term, so it needs to earn its keep against whatever it funds, not be mistaken for money released by refinancing. This calculator answers the rate-and-term question; a cash-out amount would need its own line in the numbers above.
Reading the results
The headline figure is the plain payment change: lower is a saving, higher is an increase, and a rate that is the same as or worse than the current one is flagged directly rather than quietly producing a number. The payment chart and table set the old and new payments side by side alongside the breakeven point. The balance chart plots both loans from today, so it is easy to see which one clears first, while the lifetime interest table underneath is where the real decision lives: three rows, staying, refinancing into a fresh term, and refinancing into the same remaining term, each with its own total interest, any cash closing costs, and a combined total cost, so the cheapest path is never hidden behind the smallest monthly number.
Questions people ask
Why does this calculator ask for the remaining balance instead of my original loan?
The remaining balance already reflects everything about the original loan that matters for a refinance decision today: how much is actually left to repay. Asking for the original amount, rate, term and start date as well would only recreate that same figure through an extra calculation, with more room for a typing mistake along the way.
What is the breakeven point, exactly?
It is closing costs divided by the monthly saving, the number of months it takes for the saving to add up to what the refinance cost to arrange. Stay in the loan longer than that and it was worth it in cash terms; leave sooner and it was not. It does not account for a longer new term raising total interest, which is why this page also shows a full lifetime interest comparison.
Can a lower monthly payment still cost more overall?
Yes. Resetting the loan to a fresh term spreads the same balance over more months, which lowers the payment whether or not the rate actually improved, and more months of interest can outweigh a real rate cut. The lifetime interest table on this page compares refinancing into a fresh term against refinancing into the same term that was already left, so this effect is visible rather than hidden behind a smaller payment.
Should I pay closing costs in cash or roll them into the loan?
Paying in cash costs exactly the amount of the fees, once. Rolling them in avoids paying anything at closing but adds that amount to the balance, so interest is charged on it for as long as the new loan runs, meaning the true cost ends up higher than the fee itself. It can still be the right call if cash at closing is genuinely not available, but it is not a free option.
What if the new rate is the same as or higher than my current one?
The calculator still runs the numbers and says so plainly rather than blocking the input. A monthly saving can still appear if the new term is longer than the time left on the current loan, but that saving is coming from stretching the loan out, not from cheaper borrowing, and it usually raises the total interest paid over the life of the loan.
What is a cash-out refinance?
A cash-out refinance deliberately borrows more than is owed on the current loan and pays the difference to the borrower in cash at closing, using home equity as security. It is a different question from the rate-and-term comparison this calculator runs, since the extra amount is new debt at the new loan's rate and term and needs to be judged on what it funds, not treated as money released for free.
Are typical closing costs really 2 to 6% of the loan?
That range is commonly quoted for US refinances and covers lender, appraisal, title and similar fees, though the actual figure varies by lender, loan size, location and credit profile, and some recent surveys put the national average lower than that range for straightforward refinances. In the UK, remortgaging usually involves a flat product or arrangement fee instead, commonly somewhere in the hundreds to low thousands, sometimes with a small percentage-based fee on larger loans. Either way, the number on an actual loan estimate or mortgage offer is the one to trust over any general rule of thumb.
This calculator gives an estimate for a standard rate-and-term refinance and is not financial or lending advice. Real quotes depend on fees, credit history, property value and a lender's own criteria, and rates change daily. Speak to a mortgage adviser or your lender before making a decision.