Mortgage Refinance Calculator
Find out if refinancing your mortgage makes financial sense and how much you could save.
Mortgage Refinance Calculator
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Understanding Mortgage Refinancing
Mortgage refinancing is the process of replacing your current mortgage with a new one, typically to secure a lower interest rate, reduce monthly payments, or change your loan term.
When Does Refinancing Make Sense?
Refinancing can be beneficial in several scenarios:
- Lower interest rates: When market rates drop significantly below your current rate
- Improved credit score: If your credit has improved since you got your original mortgage
- Changed financial situation: When you need to lower monthly payments or want to pay off your mortgage faster
- Eliminate PMI: If your home has appreciated and you can refinance with 20% or more equity
- Switch from adjustable to fixed rate: To lock in a good rate and avoid future rate increases
The Break-Even Point
One of the most important calculations in refinancing is determining your break-even point—the time it takes for your savings to outweigh the costs of refinancing.
To calculate your break-even point:
Break-Even Point = Total Closing Costs ÷ Monthly Savings
For example, if refinancing costs $4,000 and saves you $200 per month, your break-even point would be 20 months. If you plan to stay in your home longer than this, refinancing likely makes financial sense.
Types of Refinancing
Rate-and-Term Refinance
- Changes your interest rate, loan term, or both
- Doesn't increase your loan balance (except for closing costs)
- Primary goal is to save money on interest or adjust payment schedule
- Often has lower closing costs than cash-out refinancing
Cash-Out Refinance
- Replaces your mortgage with a larger loan
- Gives you the difference in cash to use as you need
- Typically has higher interest rates than rate-and-term refinancing
- Often used for debt consolidation, home improvements, or major expenses
Smart Refinancing Strategies
To maximize the benefits of refinancing, consider these strategies:
Pay Points or Not?
Mortgage points (or discount points) are fees you pay to the lender at closing in exchange for a reduced interest rate.
Paying Points Makes Sense When:
- You plan to keep the loan long enough to recoup the upfront cost
- You want the lowest possible monthly payment
- You have extra cash available at closing
- You're in a high tax bracket (points may be tax-deductible)
Paying Points Doesn't Make Sense When:
- You plan to sell or refinance again in the near future
- You don't have much cash for closing
- The interest rate reduction is minimal
- You could use the money more effectively elsewhere
Choosing the Right Loan Term
When refinancing, you'll need to decide whether to extend, shorten, or maintain your loan term:
| Strategy | Pros | Cons |
|---|---|---|
| Shorter Term (e.g., 30→15 years) |
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| Same Term (e.g., 30→30 years) |
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| Longer Term (e.g., 15→30 years) |
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A popular strategy is to refinance to a lower rate with the same or shorter term, but make payments as if it were your original mortgage. This approach accelerates your payoff while maintaining the flexibility of lower required payments.
Actionable Steps for Refinancing
Check your credit score
Before applying for refinancing, review your credit reports and score. The best rates are typically available to borrowers with scores above 740. Consider taking time to improve your score before applying if it's lower than ideal.
Determine your home's value
Get a rough estimate of your home's current value using online tools or recent comparable sales in your area. Your loan-to-value ratio will impact your rate and eligibility.
Shop multiple lenders
Get loan estimates from at least 3-5 different lenders, including your current mortgage servicer, local banks, credit unions, and online lenders. Compare not just rates, but also closing costs and lender fees.
Calculate your break-even point
Use our calculator to determine how long it will take to recoup the costs of refinancing. If you plan to move before reaching this point, refinancing might not be worthwhile.
Prepare your documentation
Gather financial documents including recent pay stubs, W-2s, tax returns, bank statements, and information about your assets and debts. Having these ready will make the application process faster.
Lock in your rate
Once you've chosen a lender, consider locking in your interest rate, especially in a rising rate environment. Rate locks typically last 30-60 days, so time your application accordingly.
Frequently Asked Questions
How much can I save by refinancing?
Savings depend on many factors, including the difference between your current and new interest rates, loan term, loan amount, and closing costs. Generally, a difference of at least 0.5-1% in interest rate is needed to make refinancing worthwhile, but each situation is unique.
What credit score do I need to refinance?
While requirements vary by lender and loan type, you'll generally need a credit score of at least 620 for conventional refinancing. To qualify for the best rates, aim for a score of 740 or higher. FHA and VA refinance loans may have more flexible credit requirements.
How much equity do I need to refinance?
For conventional refinancing, you typically need at least 20% equity to avoid private mortgage insurance (PMI). Some programs allow refinancing with less equity, including FHA loans (3.5% equity) and VA loans (0% equity for eligible veterans). Cash-out refinancing usually requires more equity.
How often can I refinance my mortgage?
Technically, there's no legal limit on how often you can refinance. However, many lenders have "seasoning" requirements, typically requiring 6-12 months between refinances. Additionally, each refinance incurs closing costs, so frequent refinancing can be counterproductive.
What are the tax implications of refinancing?
Mortgage interest remains tax-deductible on loans up to $750,000 (for loans taken after Dec. 15, 2017) if you itemize deductions. Points paid for refinancing typically must be amortized over the life of the loan, unlike points for purchase mortgages. Consult a tax professional for advice specific to your situation.
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