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- The old "1% rule" is outdated — what matters is whether you will stay past the break-even month.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.
Written by Gurjeet Singh, Sharpen Solutions. Last reviewed 8 Sep 2026. How we check these numbers.