What is the Mortgage Refinance?
Refinancing replaces your existing mortgage with a new one, usually to capture a lower rate. Closing costs typically run 2–5% of the loan, which is why the break-even month matters more than the rate cut itself.
The classic trap: refinancing a 26-year remaining balance into a fresh 30-year term lowers the payment but can increase total interest, because you restart the amortisation clock.
Formula & worked example
Lifetime difference = Total on old loan − (Total on new loan + costs)
Worked example: $340,000 at 7.25% with 26 years left costs about $2,424 a month. Refinancing to 6.25% over 30 years drops it to $2,093 — a saving of $331 a month, breaking even on $6,500 of closing costs in 20 months. But note the lifetime figure is slightly negative here: stretching 26 remaining years back out to 30 cancels most of the rate benefit. Match the new term to your remaining years instead.
How to use this mortgage refinance calculator
- Enter your current balance, rate and years remaining.
- Enter the new rate you have been quoted in writing.
- Set the new term — matching your remaining years avoids restarting amortisation.
- Include all closing costs: origination, appraisal, title, recording.
Smart tips
- The old "1% rule" is outdated — what matters is whether you will stay past the break-even month.
- Match the new term to your remaining years to capture the rate cut without extending the loan.
- A no-closing-cost refinance simply builds the fees into a higher rate; run both scenarios.
- Refinancing resets amortisation, so early payments go mostly to interest again.
- Cash-out refinancing converts equity into debt — treat it very differently from a rate-and-term refinance.
Frequently asked questions
When is refinancing worth it?
When you will stay in the home well past the break-even month. A 0.75–1% rate cut with 5+ years remaining is usually worthwhile.
What are typical closing costs?
2–5% of the loan amount, covering origination, appraisal, title insurance, and recording fees.
Does refinancing hurt my credit?
A small temporary dip from the hard inquiry and the new account, typically recovering within a few months.
Should I refinance into a shorter term?
If you can afford the higher payment, yes — shorter terms carry lower rates and dramatically less total interest.
Want the theory behind the numbers? Read our mortgage guides on the Money Blog.