What is a mortgage refinance?
A refinance replaces your existing mortgage with a new loan—often to lower the rate, change the term, or access equity. The calculator above compares your current loan to a proposed new one and shows month-one savings, total interest savings, break-even timing, and equity over time.
How refinancing works
- We estimate your remaining balance and payment on the current loan using standard amortization.
- We build a new loan from your inputs (rate, term, cash-out, and closing costs—paid now or financed).
- We compare total monthly costs (P&I, estimated escrow, and PMI if applicable).
- Break-even ≈ closing costs ÷ month-one savings. Total interest saved compares the rest of your current loan vs. the full new loan.
Key refinancing factors
Your interest rate
Even a small rate drop can reduce interest meaningfully, especially early in the term.
Closing costs
Typically 2–5% of the loan amount. You can pay at closing or roll them into the new principal.
Credit score & LTV
Better credit and a lower loan-to-value (LTV) often qualify for better pricing and can avoid PMI.
Term selection
Shorter terms increase the payment but lower total interest. Longer terms do the opposite.
Common refinance types
- Rate-and-term: Change your rate and/or length with no cash back.
- Cash-out: Borrow more than the current balance to access equity.
- Streamline (FHA/VA): Simplified documentation for eligible loans; terms vary by program.
When to refinance
- You can lower your rate enough to break even before you sell or move.
- You want to shorten the term to pay off faster and build equity.
- You need cash for renovations or debt consolidation (cash-out).
- Your adjustable-rate mortgage is resetting and you prefer a fixed rate.
The refinancing process
- Use the calculator to estimate savings and break-even.
- Request quotes and compare written Loan Estimates.
- Apply and provide documents (income, assets, insurance).
- Appraisal and underwriting (if required).
- Receive final terms (Closing Disclosure) and sign at closing.
Refinancing FAQs
How accurate is the calculator?
It uses standard amortization and plain assumptions for PMI and escrow items. Use it to compare scenarios, then confirm with a lender’s Loan Estimate.
What are typical closing costs?
Often 2–5% of the loan amount. State taxes and lender fees vary. You can enter a dollar amount or a percentage and choose to pay now or finance into the new loan.
Will refinancing affect my credit score?
A hard inquiry may cause a small, temporary dip. Rate-shopping within a short window is usually counted as one inquiry by major scoring models.
When does PMI apply?
PMI is generally required when LTV > 80%. In this tool, PMI ends once the balance falls to 80% of home value. Program rules can differ.
How do you calculate break-even?
Break-even ≈ closing costs divided by month-one payment savings. If savings are ≤ $0, there is no break-even for those inputs.
Is a shorter term always better?
It cuts total interest but raises the payment. Choose a term that balances savings and cash-flow.