Should you refinance your mortgage to a lower rate?
Rates dropped, your bank is calling about a refinance. But it's not just about the lower payment, there are origination fees, appraisal, title work, and weeks of paperwork. Does it actually pay off?
You enter your current loan and the new offer, and the calculator gives you a clear verdict: refinance, marginal, or keep your current loan.
The key number is the break-even point: how many months until the refinancing costs are recovered from your monthly payment savings. If you sell the house or pay off early before that point, refinancing was a net loss.
How to use it
- Under current loan, enter remaining principal, current rate, and years left.
- Under new offer, enter the new rate, new term (banks usually push 25-30 years) and closing costs.
- Under holding plan, enter how many years you plan to keep the loan. This is the most important parameter.
- You get three numbers: the new payment, the monthly savings, and the break-even point in months.
- The verdict tells you straight: green = refinance, amber = marginal, red = keep current.
When this is useful
Five common scenarios:
- Rates dropped. "I took out my mortgage at 8% in 2022, now they're offering 5%". This is where you see if it actually pays off after fees.
- Your bank pitched a lower payment. Sometimes a real deal, sometimes marketing. Punch in their numbers and see the actual math.
- You plan to sell in 5-10 years. Absolutely critical. Refinancing with 4% closing costs may take 3-4 years to break even. Sell before that = net loss.
- Comparing several refinance offers. Bank A: 5.5% with 2% fees, Bank B: 5.2% with 4% fees. Which has the better break-even? Find out here.
- "Lower the payment or shorten the term?". Some refinance offers let you pick. Lower payment = more total interest, but lighter monthly. See both versions.
If instead of refinancing you're considering paying extra from spare cash, use our loan calculator and switch on advanced mode. You can model overpayments and see how much interest you save.