Mortgage Refinance Calculator
Use this free mortgage refinance calculator to compare your current loan against a new rate and term, estimate your break-even point, and see total savings. Determine when refinancing your mortgage makes financial sense.
The refinance process generally includes prequalification, a formal application, rate lock, appraisal, underwriting, and closing. Closing costs—such as appraisal, title, lender fees, and points—are paid at closing or rolled into the new loan. Our calculator helps you test how these costs impact monthly savings and break-even months.
Popular refinance types include rate-and-term (change rate/term without cash out) and cash-out (increase loan balance to access equity). You can also pursue streamline options in some programs (FHA, VA IRRRL, USDA), which reduce documentation when certain conditions are met.
For best results, compare at least three lenders, evaluate APR instead of just rate, and consider whether paying discount points lowers your total interest enough to be worthwhile. If you plan to move soon, a no-closing-cost refinance may be better than paying upfront fees, even if the rate is slightly higher.
How Refinancing Works
You pay off the existing loan with a new loan at a potentially lower rate or different term. Closing costs must be recouped through monthly savings for refinancing to make financial sense.
- Shop and compare: Get quotes from multiple lenders; compare APR, points, and closing costs.
- Lock a rate: Protect against market changes while the lender processes your file.
- Appraisal & underwriting: Verify income, assets, debts, and property value; some streamline programs reduce paperwork.
- Close and fund: Your new loan pays off the old one; you begin payments after the rescission period for primary residences.
The two primary refinance strategies are rate-and-term (lower rate or change term without taking cash) and cash-out (increase the loan amount to access equity). Rate-and-term often reduces monthly payments and total interest, while cash-out may raise the payment but can fund renovations or consolidate higher-interest debts.
Ask your lender about float-down options in case rates fall after you lock. For primary residences, a three-day rescission period applies after closing—funds disburse after rescission ends and your first payment date is set in the closing documents.
Eligibility & Documentation
Lenders evaluate credit score, income stability, debt-to-income (DTI), loan-to-value (LTV), and property condition. Typical documentation includes:
- Two years of W-2s or tax returns and recent pay stubs
- Two months of bank statements and asset documentation
- Homeowners insurance declarations page
- Mortgage statements and payoff information
- Identification and occupancy verification
Streamline Programs (FHA, VA IRRRL, USDA)
Certain programs allow reduced documentation and faster closings when refinancing into the same program and meeting net tangible benefit rules. Examples include FHA Streamline, VA IRRRL, and USDA Streamlined. These typically forgo an appraisal or income verification, but may have limitations on cash-out and require a benefit such as lower payment or rate.
Rate Lock Strategy & Float-Downs
Locking secures your rate during processing (often 30–60 days). Some lenders offer float-down provisions if market rates drop meaningfully before closing. Ask for specifics: thresholds, fees, and timing. If rates are volatile, shorter locks can reduce pricing costs—balance this against underwriting timelines.
M = P × [r(1 + r)^n] / [(1 + r)^n - 1]
- P: Loan principal
- r: Monthly interest rate
- n: Number of payments
Break-Even Analysis
The break-even point is how long it takes for monthly savings to equal the closing costs. If you plan to stay longer than the break-even period, refinancing is typically worthwhile.
To estimate break-even, divide total closing costs by your monthly savings. For example, if costs are $5,000 and savings are $150 per month, break-even is about 33 months. If you expect to move or refinance again before then, the savings may not justify the costs.
Consider secondary factors: changes in property taxes or insurance, removing PMI, and differences in total interest over the life of the loan. A shorter term may increase the monthly payment but dramatically reduce total interest paid.
Effective Savings Check
Use net monthly savings for your calculation. Adjust for PMI removal/addition, HOA dues, tax/insurance changes, and any escrow differences. If you’re rolling costs into the loan, include the impact of a slightly higher principal on your payment.
NPV Approach (Time Value of Money)
A more precise method discounts future savings at a reasonable rate (e.g., your expected investment return). If the net present value (NPV) of savings minus upfront costs is positive, refinancing adds value.
NPV = \sum_{t=1}^{T} \frac{S_t}{(1 + d)^t} - C
- St: Net monthly savings in month t
- d: Monthly discount rate (annual rate ÷ 12)
- C: Upfront closing costs
months = closingCosts ÷ monthlySavings
Example: $5,000 ÷ $150 = 33.3 months (2.8 years)
Refinancing Costs
- Closing Costs: 2–5% of loan amount (appraisal, title, origination)
- Prepayment Penalties: Some loans charge for early payoff
- Points: Optional upfront fees that reduce your rate
- Title Insurance: Common requirement in refinances
- Appraisal Fee: Typically $300–$600
- Credit Report & Flood Cert: Small administrative fees charged by lenders
- Recording & Transfer Fees: County and state charges to record the new mortgage
- Escrows: Initial deposits for taxes and insurance when changing servicers
- No-closing-cost option: Higher rate in exchange for lender-paid closing costs
Ask for a detailed loan estimate from each lender to compare fees line-by-line. If you plan to stay in the home long enough, paying points can reduce your APR and total interest. If your horizon is short, a no-closing-cost refinance might be preferable.
Rolling Costs vs Paying Upfront
Rolling costs into the loan increases principal and may slightly raise your payment, but preserves cash. Paying upfront reduces principal and total interest. If you have a high-yield alternative use for cash, rolling costs can be reasonable—test both in the calculator.
Points vs Lender Credits
Discount points lower your rate by paying fees upfront; lender credits raise your rate to offset closing costs. Choose points when you’ll keep the loan long enough to break even on the cost. Choose credits when your time horizon is short or cash is tight.
APR \approx r + \frac{\text{upfront fees}}{\text{loan amount}} \times \frac{1}{\text{average loan life}}
APR includes some fees and is better for comparing offers than interest rate alone.
Rate vs. Term Considerations
Rate-and-Term Refinance
- Lower monthly payments
- Keep 30-year term
- Best for cash flow
- More interest over the long term
Cash-Out Refinance
- Access home equity
- Higher loan amount
- Good for major expenses
- Often increases monthly payments
Shortening your term (for example, moving from 30 years to 15 years) can increase the monthly payment but significantly reduce total interest and help you become mortgage-free sooner. Extending your term lowers the payment but may increase lifetime interest cost. Use the calculator to test different terms and rates.
If you currently have an ARM, refinancing into a fixed rate may stabilize your payment and reduce risk. Conversely, if rates are high today but expected to fall, some borrowers prefer shorter-term ARMs with plans to refinance later—be mindful of timing and costs.
- Discount points: Pay upfront to reduce your rate; best when you’ll keep the loan long enough.
- Payment shock: Shorter terms increase payment—budget carefully and maintain an emergency fund.
- Total interest: Lower rates and shorter terms reduce lifetime interest; model scenarios in the calculator.
15-Year vs 30-Year: Quick Example
On a $300,000 loan, a 30-year at 6.75% may have a payment around $1,946 (principal & interest), while a 15-year at 6.25% might be ~$2,565. The 15-year saves tens of thousands in interest and pays off sooner, but requires a higher monthly budget. Use the calculator to see precise figures for your scenario.
\text{Total Interest} \approx M \times n - P
- M: Monthly payment (principal & interest)
- n: Number of payments
- P: Principal (loan amount)
Tax Implications
Refinancing doesn’t remove mortgage interest deductions, but points paid on a refinance are typically deducted over the loan term. Consult a tax professional for guidance.
For cash-out refinances, interest on the portion used to substantially improve the home may be deductible, while interest used for other purposes (like debt consolidation) may not be. Tax rules change and depend on your situation, so always verify with a qualified advisor.
Points Deduction Example
If you pay $3,000 in points on a 30-year refinance, you typically deduct the points over the loan term ($100 per year). If the refinance also includes eligible home improvements, some points may be deductible in the year paid—confirm with your tax advisor.
When Not to Refinance
- Short Horizon: Planning to move within 2–3 years
- Minimal Savings: Rate reduction under ~0.5%
- High Costs: Closing costs exceed potential savings
- Credit Concerns: Recent credit issues
- Prepayment Penalties: Current loan penalizes early payoff
- Low Equity or PMI: If you’d add PMI or cannot remove it
- ARM about to drop: If your ARM margin and index suggest lower upcoming rates
- Debt consolidation without plan: Cash-out to pay debts without changing spending habits
If any of these apply, run the numbers carefully. Sometimes a tweak—like a no-closing-cost option or a shorter term—can improve outcomes. The calculator’s break-even months and total savings metrics help you decide with confidence.
Tips to Maximize Savings
Use this calculator to test scenarios. Refinancing is powerful when you’ll stay past the break-even and can secure a rate meaningfully below your current one.
- Compare at least three lenders and negotiate lender credits.
- Evaluate discount points; aim for APR reduction, not just rate.
- Consider a shorter term to reduce total interest and pay off faster.
- Ask about no-closing-cost options if your horizon is short.
- Improve credit score and lower DTI to qualify for better rates.
- Time your lock during favorable rate movements; watch economic releases.
FAQs
Does refinancing always lower my payment?
Not always. If you shorten your term or take cash out, payments can increase even if the rate is lower.
How much should rates drop to refinance?
A common rule of thumb is a drop of ~0.75% or more, but use the break-even formula to be sure.
Are points worth it?
Points lower your rate but increase upfront costs. They make sense if you’ll keep the loan long enough.
What credit score do I need to refinance?
Many lenders prefer scores of 620+ for conventional loans; higher scores generally qualify for better rates. FHA, VA, and USDA programs may allow lower scores.
Can refinancing remove PMI?
If your new loan’s LTV is at or below 80% based on appraisal, you may be able to refinance without PMI. You can also request PMI removal from your current servicer once you meet the requirements.
Does refinancing reset amortization?
Yes, a new loan starts a new amortization schedule. Shortening your term helps offset this by accelerating principal payoff and reducing total interest.
Is a no-closing-cost refinance really free?
No. The lender typically charges a higher interest rate to cover costs. This can make sense if you plan to move or refinance again before a traditional break-even period.
How long does refinancing take?
Most refinances close in 3–6 weeks, depending on appraisal scheduling, underwriting complexity, and your responsiveness to documentation requests.
What is the difference between APR and interest rate?
The interest rate is the cost to borrow money; APR includes the rate plus certain fees, giving a more complete picture for comparisons.
Can I refinance if I’m underwater?
Options are limited if your home value is below your loan balance. Some programs or lender-specific solutions may help; otherwise you may need to wait for equity to rebuild.
Should I refinance to consolidate debt?
Cash-out can reduce interest on high-rate debts, but it converts unsecured debt into secured debt tied to your home. Create a plan to avoid re-accumulating balances.
Can I refinance FHA, VA, or USDA loans?
Yes. Streamline programs (FHA Streamline, VA IRRRL, USDA Streamlined) may offer reduced documentation and faster closings when certain criteria are met.
Will refinancing hurt my credit score?
A credit inquiry and new account can cause small, temporary dips, but on-time payments and lower utilization generally help over time.
Is a cash-out refinance better than a HELOC?
A cash-out refinance replaces your first mortgage with a larger one, often at a lower fixed rate than a HELOC, and consolidates your debts into a single payment. A HELOC is a second-lien line of credit, usually variable-rate, that lets you borrow as needed and repay flexibly.
Choose cash-out when you want a predictable payment and plan to keep the loan for years. Choose a HELOC when you need short-term access to funds, expect to repay quickly, or prefer not to reset amortization on your first mortgage.
What is a mortgage recast, and how is it different from refinancing?
A recast lowers your monthly payment after you make a lump-sum principal payment; the servicer recalculates your payment based on the remaining term and balance. It does not change your interest rate or loan term.
Refinancing replaces your loan with a new one, potentially changing rate and term and incurring closing costs. Recast is useful when your rate is already competitive and you have cash to apply toward principal without changing loan terms.
Can I remove PMI without refinancing?
Yes. For conventional loans, you can request PMI removal when you reach 80% LTV based on the original schedule or a new appraisal, subject to servicer requirements. Many servicers will evaluate your request once you can document sufficient equity and a good payment history.
Refinancing can also remove PMI if your new loan’s LTV is 80% or lower. Compare both options—PMI removal is often cheaper than a full refinance if your current rate is already competitive.
How do lender credits work?
Lender credits offset closing costs in exchange for a slightly higher interest rate. This can be advantageous if your time horizon is short, or you prefer to preserve cash for other goals.
Contrast credits with discount points, which reduce your rate for upfront cost. Use the calculator to compare break-even timelines for points vs. credits under different rate scenarios.
Should I wait for rates to drop before refinancing?
Waiting can pay off if rates clearly trend lower, but timing the market is difficult. Consider a no-closing-cost option or shorter term that preserves flexibility and reduces total interest now, with the option to refinance again if rates fall.
If your current loan is an ARM with an adjustment upcoming, model both outcomes: refinance now into a fixed rate, or accept a short-term ARM adjustment and revisit once market conditions improve.
What happens to my escrow account when I refinance?
Your new lender typically establishes a fresh escrow account for taxes and insurance at closing. You’ll fund initial escrows as part of closing costs; your prior servicer will refund any remaining escrow balance to you after payoff.
Escrow changes can temporarily affect your monthly payment—review new tax and insurance amounts and account for any seasonal adjustments in your break-even analysis.
Can I refinance an investment property or second home?
Yes, but underwriting is stricter and rates are often higher than for a primary residence. Expect higher reserve requirements, tighter DTI thresholds, and possibly larger pricing adjustments.
Shop multiple lenders familiar with investment properties and compare points, credits, and closing timelines—investment scenarios can vary significantly by lender.
Can I use a temporary buydown (e.g., 2-1 buydown) on a refinance?
Some lenders offer temporary buydowns that reduce payments for the first 1–2 years, funded by credits. These can ease near-term budgets if you expect income growth or plan to refinance again.
Compare total cost and effective APR. Temporary buydowns are useful for managing cash flow but do not lower your long-term interest rate unless you refinance again later.
Glossary
- Rate-and-Term Refinance: Replace loan to change rate or term without cash out.
- Cash-Out Refinance: Increase loan balance to access home equity.
- Break-Even: Months until savings equal closing costs.
- Points: Upfront fees that reduce interest rate.
- APR: Annual percentage rate including certain fees; useful for comparisons.
- DTI: Debt-to-income ratio; percentage of monthly debts vs. income.
- LTV: Loan-to-value ratio; loan amount divided by appraised value.
- PMI: Private mortgage insurance for conventional loans above 80% LTV.
- Escrows: Funds held by servicer to pay taxes and insurance.
- ARM: Adjustable-rate mortgage with periodic rate adjustments.