How to read your result
A refinance replaces your existing mortgage with a new one — usually to capture a lower rate, change the term, or free up monthly cash — and this calculator compares principal and interest only, since that's the part a refinance actually changes (escrow items like taxes and insurance stay roughly the same regardless of rate). Refinancing tends to make sense when the rate drop is meaningful, you'll stay past the break-even point, and you're not stretching the term out much further than you have left; it may not make sense if you'll move or refinance again before break-even, or if the only way to lower the payment is resetting to a much longer term. That's the classic trap this calculator is built to catch: a lower monthly payment is not the same as a lower lifetime cost — resetting a 25-year balance into a fresh 30-year loan adds five years of payments, and a lower rate spread over more years can still raise total interest. You can pay closing costs and points in cash, roll them into the new balance, or take a no-closing-cost rate where the lender absorbs them for a higher rate — none of these is free, so compare all three. Turn on the same-remaining-term comparison to isolate the pure rate benefit without the distortion of a longer schedule.
Worked example
Suppose you owe $350,000 at 7.5% with 25 years left, and you are offered 6.5% on a fresh 30-year loan with $6,000 in closing costs paid in cash.
Current payment
$2,586 / mo
5-year net saving
≈ +$16,440 cash flow
Lifetime cost difference
−$26,464 (extra cost)
The lower payment recovers the $6,000 of costs in about 17 months — good for monthly cash flow, and within five years you would be roughly $16,000 ahead on payments. But stretching a 25-year balance back out to 30 years adds five more years of payments, so the lifetime total is roughly $26,000 higher even at the lower rate. This is the classic trap: a lower payment is not the same as a lower cost. A same-term comparison (6.5% over the 25 years you have left) would instead show a real lifetime saving, because it captures the rate benefit without resetting the clock.
When this calculator may be wrong
This is a planning estimate, not a lender quote. The relative comparison is reliable, but the absolute figures can differ from your real loan because:
- It compares principal and interest only — taxes, insurance, escrow, and HOA are not included unless you add them elsewhere.
- It does not calculate the lender's APR or finance charge, which fold in fees differently.
- It assumes a fixed rate and the figures you enter; adjustable-rate loans and lender-specific fees can change the outcome.
- It does not model the tax treatment of mortgage interest, mortgage-insurance changes, or prepayment penalties.
- Advertised rates often assume excellent credit and points paid upfront, so the rate you qualify for may differ.
Verify before deciding: confirm the rate, points, fees, and cash-to-close on a lender's official Loan Estimate, and consider speaking with a qualified mortgage or financial professional.
Read the guide
For the full explanation of why a lower payment doesn't always mean a cheaper loan, see Mortgage Payment vs Total Loan Cost: What Borrowers Often Miss.