Mortgage Refinance Calculator

The Break Even Month

Closing costs divided by the monthly saving. That is the whole calculation. Six thousand in costs against two hundred and fifty a month saved is twenty four months before you are level.

It only counts if you stay. Selling or refinancing again before that month means the costs were spent and never recovered, regardless of how good the rate looked.

Compare it to how long you expect to stay. That comparison decides the question far more often than the rate difference does.

No saving means no break even. If the new payment is higher there is nothing to recover, and this page says so rather than printing a number.

How to Use This Calculator

Use the balance, not the original loan. Refinancing replaces what is left, so the starting figure is today's balance rather than what you borrowed.

Enter the years remaining, not the original term. A twenty five year balance refinanced over thirty is an extension, and the calculator can only spot that if it knows where you are now.

Try matching the remaining term. Setting the new term equal to the years left isolates the effect of the rate alone, which is the honest comparison.

Watch the amber panel. It appears whenever the payment falls because of a longer term while the total interest rises, which is the case most often misread.

The Longer Term Trap

A payment can fall while the loan costs more. Twenty years left refinanced into a fresh thirty at exactly the same rate lowers the monthly figure and adds a great deal of interest. Nothing improved except the cash flow.

It is the default presentation. Most refinance offers quote the new payment against the old one, and a longer term makes that comparison flattering without any rate improvement at all.

Cash flow is a legitimate reason. If the monthly amount is what is straining you, a longer term solves the actual problem. It is a choice to make knowingly rather than one to stumble into.

The fix is to compare like for like. Set the new term to the years you have left, see what the rate alone does, and then decide separately whether to extend.

What Closing Costs Cover

Commonly two to five percent of the balance. Origination or arrangement fees, valuation, legal work, searches and recording. They vary widely between lenders.

Some are negotiable and some are not. Lender fees often are. Third party costs such as the valuation generally are not, though who pays them can sometimes be moved.

A no cost refinance is not free. The costs are covered by a higher rate instead, so you pay them slowly rather than at the start. Whether that is better depends entirely on how long you stay.

Check for an early repayment charge. Some existing loans penalise settling early, and that charge belongs in the closing costs figure above.

Rolling Costs Into the Loan

It avoids paying cash and raises the balance. The costs are added to what you borrow, so you pay interest on them for the life of the loan.

The payment shown changes accordingly. The checkbox above recalculates on the larger balance so the comparison stays honest.

It can push you over a loan to value band. Adding costs to the balance raises the ratio, which occasionally moves you into a worse rate tier or reintroduces mortgage insurance.

Resetting the Amortisation Clock

Early payments are mostly interest. A mortgage front loads interest heavily, so the first years build very little equity.

Refinancing starts that curve again. Eight years into a loan, refinancing into a new thirty year term puts you back at the point where almost nothing goes to principal.

Which is why matching the remaining term matters. Refinancing twenty two years into a twenty two year loan keeps your position on the curve and captures the rate improvement cleanly.

When Refinancing Genuinely Pays

A materially lower rate on a similar term. The classic case, and the one where both the payment and the total interest move in your favour.

Dropping mortgage insurance. If your equity has passed the threshold, a refinance can remove the charge even where the rate is unchanged.

Leaving a variable rate. Moving to a fixed rate buys certainty, which has value that does not show up in either the payment or the interest total.

Shortening the term deliberately. Refinancing thirty years into fifteen raises the payment and cuts the interest enormously. It is the opposite of the trap and rarely advertised.

Cash Out Refinancing

Borrowing more than you owe and taking the difference. A different transaction from a rate refinance, and this calculator does not model it.

The rate is usually worse. Cash out loans price higher than straight refinances, and the larger balance raises the loan to value at the same time.

It converts unsecured debt into secured debt. Using it to clear credit cards lowers the interest rate and puts your house behind the balance. That is a real trade rather than an obvious win.

Common Mistakes to Avoid

Comparing payments across different terms. The single most common error, and the one every offer document encourages.

Ignoring how long you will stay. A twenty eight month break even is irrelevant if you are moving in two years.

Forgetting the early repayment charge. It can be large enough to change the answer entirely and it is easy to overlook.

Refinancing repeatedly. Each round resets the amortisation clock and pays another set of costs, and it is possible to be worse off after several apparently good deals.

Frequently Asked Questions