When does refinancing make sense?
Refinancing replaces your current mortgage with a new one, usually to get a lower interest rate, change the loan term or switch from an adjustable to a fixed rate. Because a refinance comes with closing costs — typically 2% to 6% of the loan amount for appraisal, title, origination and other fees — the key question is how long it takes for the monthly savings to pay those costs back.
The break-even point
Divide your closing costs by your monthly savings. If a refinance costs $6,500 and lowers your payment by $220 a month, you break even in about 30 months. If you expect to stay in the home well beyond the break-even point, the refinance is likely worth it; if you might sell or refinance again sooner, it may not be. A common rule of thumb is that a rate drop of around 0.75 to 1 percentage point is often enough to justify a refinance, but the break-even calculation is more reliable than any rule of thumb.
Watch the total interest, not just the payment
Resetting to a new 30-year term can lower your payment even with little or no rate improvement — but it also stretches your remaining payments over more years, which can increase the total interest you pay. The calculator compares lifetime interest on your current loan with the new one so you can see the full picture. Refinancing into a shorter term, such as 15 or 20 years, often raises the monthly payment but saves a large amount of interest.
Other things to consider
- Credit score and equity: the best rates usually require a strong credit score and at least 20% equity; with less equity you may pay mortgage insurance.
- Rolling in costs: adding closing costs to the loan avoids paying cash upfront but increases the balance and interest.
- Cash-out refinancing: borrowing more than you owe to take out cash usually comes with a higher rate; compare it with a HELOC or home equity loan.
- Points: paying discount points lowers your rate but adds to closing costs and lengthens the break-even period.
The new rate field starts with the latest Freddie Mac weekly average when available; your actual offer depends on your credit, loan size and lender.
Worked example
A homeowner owes $320,000 at 7.25% with 27 years left, paying about $2,250 a month in principal and interest. Refinancing into a new 30-year loan at 6.25% drops the payment to about $1,970 — a saving of roughly $280 a month. With $6,500 in closing costs, they break even in about two years. However, because the new loan runs three years longer, the lifetime saving is smaller than the monthly figure suggests; choosing a 20- or 25-year term, or continuing to pay the old amount, captures more of the benefit.
Frequently asked questions
How much does it cost to refinance a mortgage?
How do I calculate my refinance break-even point?
Is it worth refinancing for 1%?
Does refinancing restart my loan?
Sources & methodology
This calculator was last reviewed on November 2, 2026. Figures are based on the following official and primary sources:
- Consumer Financial Protection Bureau – Refinancing your mortgage
- Freddie Mac – Primary Mortgage Market Survey
- Freddie Mac PMMS via FRED; Bank of Canada Valet API
Spotted an error? Tell us and we'll fix it quickly. Read how we build and update our tools in our editorial policy.