A Guide to Refinancing Your Loan
Refinancing can be a powerful financial move, but is it the right one for you? By replacing your current loan with a new one—ideally with a lower interest rate or better terms—you could lower your monthly payments, pay off your debt faster, and save a significant amount of money. This calculator provides a clear, numbers-based analysis to help you make an informed decision.
How to Use This Refinance Calculator
Get a clear picture of your potential savings in just a few steps:
- Enter Current Loan Details: Provide your outstanding loan balance, current annual interest rate, and the years remaining on your loan.
- Provide New Loan Details: Input the new interest rate you've been quoted (or are expecting), the new loan term, and the estimated upfront closing costs.
- Click Calculate: The tool will instantly compare the two loans.
- Analyze Your Results: Review the key metrics below to see if refinancing makes financial sense for your situation.
Understanding the Results: Key Metrics Explained
Our calculator focuses on the three most important figures in a refinance decision:
- Monthly Savings: This is the immediate, tangible benefit of refinancing—the amount your required monthly payment will decrease. This extra cash flow can be used for savings, investments, or other expenses.
- Lifetime Savings: This is the big-picture number. It shows the total amount of interest you will save over the entire term of the new loan compared to your old one, after subtracting the closing costs. This is the true measure of a refinance's long-term value.
- Break-Even Point: Refinancing isn't free; it comes with closing costs. The break-even point tells you how many months it will take for your monthly savings to pay back those upfront costs. If you plan to sell your home or pay off the loan before you reach this point, refinancing may not be worth it.
While this calculator is excellent for mortgages, it can be used for other loans like auto or personal loans. For more specific home financing scenarios, you might find our Mortgage Calculator or Loan Payment Calculator useful.
Frequently Asked Questions About Refinancing
What is refinancing?
Refinancing is the process of replacing an existing loan with a new one that has different terms. People often refinance to secure a lower interest rate, shorten or lengthen their loan term, or convert an adjustable-rate mortgage to a fixed-rate one. The old loan is paid off with the new one, and you start making payments on the new loan's terms.
When is a good time to refinance?
A good time to refinance is when current interest rates are significantly lower than your existing rate—typically at least 0.75% to 1% lower. It's also a good idea if your credit score has improved, as you may qualify for better rates. Crucially, you should also consider how long you plan to stay in the home; if you might move soon, the savings may not be enough to offset the closing costs.
What is a break-even point in refinancing?
The break-even point is the amount of time it takes for the savings from your new, lower monthly payment to cover the upfront costs of the refinance (closing costs). You can calculate it by dividing the total closing costs by your monthly savings. For example, if your closing costs are $4,000 and you save $200 per month, your break-even point is 20 months ($4,000 / $200).
Does refinancing hurt your credit score?
Refinancing can cause a small, temporary dip of a few points in your credit score. This is because the lender performs a hard credit inquiry and you are opening a new line of credit. However, as you make consistent, on-time payments, your score will likely recover and can even improve over time.
What are typical closing costs?
Closing costs for a refinance typically range from 2% to 5% of the total loan amount. These fees cover services like the appraisal, title search, loan origination, and attorney fees. Some lenders offer "no-closing-cost" refinances, but they often roll these costs into the loan balance or charge a higher interest rate.