CalculateY
Quick Answer
Refinancing a $300,000 balance from 7.0% (25 years remaining) to 5.5% (30-year) with $6,000 in closing costs saves an estimated $326/month, with an estimated break-even point of approximately 19 months.
Typically 2% to 5% of loan balance
Common Examples
| Input | Result |
|---|---|
| $300,000, 7.0% to 5.5%, 25yr to 30yr, $6,000 closing | Estimated savings: approximately $326/month, break-even approximately 19 months |
| $250,000, 6.5% to 5.0%, 20yr to 30yr, $5,000 closing | Estimated savings: approximately $340/month, break-even approximately 15 months |
| $200,000, 7.5% to 6.0%, 28yr to 30yr, $4,000 closing | Estimated savings: approximately $195/month, break-even approximately 21 months |
| $400,000, 6.0% to 5.0%, 27yr to 15yr, $8,000 closing | Estimated increase of approximately $735/month but saves approximately $151,000 in total interest |
How It Works
Monthly Payment Formula
M = P x [r(1 + r)^n] / [(1 + r)^n - 1]
Where P is the loan balance, r is the monthly interest rate, and n is the total number of payments. This standard amortization formula is applied to both the current and new mortgage.
Monthly Savings
Monthly Savings = Current Payment - New Payment
A positive result means the new mortgage has a lower estimated payment. A negative result means the new mortgage has a higher payment (which may happen when refinancing to a shorter term).
Break-Even Point
Break-Even Months = Closing Costs / Monthly Savings
The break-even point indicates how many months of savings are needed to recoup the upfront closing costs of refinancing. Refinancing only produces net savings after the break-even point. If selling the home before reaching break-even, the refinance may cost more than it saves.
Total Cost Comparison
Current Total Remaining = Current Payment x Months Remaining
New Total Cost = New Payment x New Term Months + Closing Costs
Total Savings = Current Total Remaining - New Total Cost
This comparison shows the estimated total cost difference over the full life of each loan.
When Refinancing Extends the Term
Refinancing a 25-year remaining mortgage into a new 30-year mortgage lowers monthly payments but extends the repayment period. The total interest paid may increase even if the rate is lower. Consider this tradeoff carefully. Refinancing to a shorter term (e.g., 15 years) increases monthly payments but typically saves substantial interest.
Worked Example
A $300,000 balance at 7.0% with 25 years remaining: current payment = 300,000 x [0.00583 x (1.00583)^300] / [(1.00583)^300 - 1] = estimated $2,120. Refinanced to 5.5% for 30 years: new payment = 300,000 x [0.00458 x (1.00458)^360] / [(1.00458)^360 - 1] = estimated $1,703. Monthly savings = estimated $417. With $6,000 closing costs, break-even = 6,000 / 417 = approximately 15 months.