Quick comparison
| Rate-and-term refi goal | Lower payment or shorter term |
|---|---|
| Cash-out refi goal | Access equity (higher balance) |
| Typical closing costs | About 2–5% of loan amount |
| Break-even focus | Months until costs are recovered |
| Watch-out | Resetting a 30-year clock |
When refinancing makes sense
Refinancing replaces your current mortgage with a new one — usually to secure a lower interest rate, shorten your term, switch from an adjustable to a fixed rate, or tap home equity. A common rule of thumb is that refinancing is worth considering when you can lower your rate by roughly 0.5–1% and plan to stay past the break-even point on closing costs. The better test is personalized math: new payment, costs, and how long you will keep the loan.
Understanding your break-even point
Refinancing isn't free: expect closing costs of roughly 2–5% of the loan amount unless you take a lender credit in exchange for a higher rate. Divide those costs by your monthly savings to find the break-even point in months. If you will stay longer than that, the refinance typically pays off on payment alone — then check total interest, because restarting a 30-year term can erase savings if you already had few years left.
How to use this refinance calculator
Enter your remaining balance, current rate, and months left, then the new rate, term, and estimated closing costs. The tool computes current vs new P&I, monthly savings, break-even months, and lifetime interest on both paths. Optional cash-out increases the new loan amount. Taxes and insurance are intentionally omitted so break-even stays focused on the refinance trade-off — add escrow separately if your new Loan Estimate changes those items.
Rate-and-term vs cash-out
Rate-and-term refinances focus on payment, rate type, or term length. Cash-out refinances add debt and often price slightly worse. If you need cash for a finite project, compare a cash-out refinance against a HELOC or home equity loan so you do not put your primary mortgage rate at risk for a short-term need. A $50,000 worked example is in our cash-out vs HELOC guide under Smart Buying.
Checklist before you apply
- Gather your current balance, rate, remaining term, and monthly P&I.
- Get a Loan Estimate and list all lender and third-party fees.
- Divide total closing costs by monthly savings for break-even months.
- Decide whether you want a lower payment, shorter term, or cash-out.
- Avoid extending the loan so far that lifetime interest rises despite a lower rate.
For the formulas behind every estimate, see how we calculate. Worked example: Refinance vs recast and cash-out vs HELOC.