The two clocks of a refinance
A refinance runs two clocks at once. The first is the break-even clock: closing costs divided by monthly savings, the month the deal turns profitable in cash-flow terms. The second is the term clock: your current loan has a certain number of years left, and a fresh 30-year note restarts them. This calculator derives your remaining term from the balance, rate, and payment you enter, then compares total interest on the road you’re on versus the refinanced road — including the closing costs. When the payment drops but the total rises, the warning above says so plainly.
Playing it well
- Compare at least three written offers. The CFPB recommends comparing multiple lenders; use each Loan Estimate to reconcile rate, term, points, credits, and total closing costs.
- Compare at matched terms — ask for a quote at your remaining term (e.g., 24 years, or the nearest 20/25), not just the default 30.
- Test an additional-payment scenario. If the new contract allows extra principal payments, compare its scheduled payment with continuing the old amount. For a rate-buydown scenario, use the points break-even calculator; for re-amortizing an existing eligible loan after a principal payment, use the recast calculator.
Method, example, and sources
How this calculator works
The model infers the remaining current-loan schedule from the balance, rate, and principal-and-interest payment. It amortizes the same balance over the proposed new term and rate, divides entered closing costs by monthly payment savings for cash-flow break-even, and compares remaining old interest with new interest plus those costs.
Worked example
For a $300,000 balance at 7.25% with a $2,200 payment, versus a new 30-year loan at 6.25% with $6,000 of costs, the new payment is about $1,847 and cash-flow break-even falls in month 18. Despite the lower payment, the term reset raises scheduled interest plus costs by about $36,742.
What the estimate leaves out
- The current-term inference assumes a fully amortizing fixed-rate payment; adjustable-rate, interest-only, balloon, and modified loans require different models.
- Only the entered closing costs are counted; financed costs, taxes, insurance, mortgage insurance, prepayment penalties, and the time value of cash are excluded.
- Rates and scheduled payments remain fixed, and the comparison does not forecast a sale, another refinance, missed payments, or principal prepayment.
Primary sources
Frequently asked questions
When is refinancing worth it?
There is no universal rate-drop trigger. Compare the written new payment and costs, the cash-flow break-even, how long you expect to keep the loan, and total remaining interest on both schedules. A lower payment alone does not establish a lower total cost.
What does a refinance cost?
Use the costs on the lender’s Loan Estimate and Closing Disclosure. The CFPB explains that a “no-closing-cost” offer generally covers costs through a higher rate or a larger loan balance, so the charge still affects payments or total cost.
What is the term-reset trap?
Refinancing a loan you’ve paid for years into a fresh 30-year term lowers the payment twice — once from the rate, once from stretching the balance over more years. The stretch part isn’t savings: it’s more months of interest. This calculator shows total interest both ways so the two effects aren’t confused.
How do I avoid restarting the clock?
Ask lenders for terms close to the remaining schedule and compare the written offers. If the new contract permits additional principal payments, you can also model paying more than the new minimum, but timing and servicer allocation determine the actual payoff.
Does refinancing hurt my credit?
A refinance application and new account can affect a credit file, but the size and duration vary by scoring model and borrower. Ask each lender whether it will make a hard inquiry and use current guidance from the credit bureaus or scoring provider when planning applications.