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
- Shop three lenders minimum — closing costs vary by thousands for the same loan; inquiries within the shopping window count once for your credit.
- 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.
- Or self-correct the reset — take the 30-year rate and keep paying your old amount; you get the lower obligation as insurance and the faster payoff by choice. Considering buying the rate down instead? See the points break-even calculator; happy with your rate but wanting a lower payment? That’s a recast.
Frequently asked questions
When is refinancing worth it?
The classic trigger is a rate at least 0.75–1% below your current one, but the real test is the break-even: divide closing costs by monthly savings. If you’ll keep the loan well past that month, the refinance pays. If you might move or refinance again before it, you’re donating closing costs to the lender.
What does a refinance cost?
Typically 2–6% of the loan amount: origination fees, appraisal, title insurance, and recording. “No-closing-cost” refinances exist — the costs are folded into a slightly higher rate or the balance. They can make sense for short horizons, but you’re financing the fees forever.
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?
Two options: refinance into a shorter term (a 15- or 20-year often carries a lower rate too), or take the new 30-year but keep paying your old payment amount — the extra goes to principal and the loan finishes close to the original schedule while keeping the flexibility to drop back to the lower payment if life demands it.
Does refinancing hurt my credit?
A hard inquiry and a new account cause a small, temporary dip — typically a few points for a few months. Rate-shopping multiple lenders within a 14–45 day window counts as a single inquiry. The long-term effect of a cheaper, well-paid loan is neutral to positive.