Our free refinance calculator helps you determine if refinancing your mortgage makes financial sense. Compare your current mortgage with refinancing options to see potential savings, calculate the break-even point, and make an informed decision about whether to refinance.
Understanding Mortgage Refinancing
Mortgage refinancing involves replacing your existing mortgage with a new loan, typically to secure a lower interest rate, reduce monthly payments, shorten the loan term, or tap into home equity. Our refinance calculator helps you analyze the financial impact of refinancing based on your specific situation.
How to Use the Refinance Calculator
To get an accurate refinance analysis, follow these steps:
- Enter your current loan balance, interest rate, and remaining term
- Input your new loan's interest rate and term
- Add closing costs, points, and any cash-out amount if applicable
- Include property taxes, insurance, PMI, and HOA fees
- Click "Calculate Refinance Savings" to see your results
Key Refinancing Metrics Explained
Monthly Savings
This is the difference between your current monthly payment and your new monthly payment after refinancing. A positive number indicates you'll pay less each month, while a negative number means your monthly payment will increase (which might still make sense if you're shortening your loan term).
Lifetime Savings
The total amount you'll save over the life of your new loan, accounting for closing costs and changes in loan term. This figure considers the total cost of both loans rather than just comparing monthly payments. Investopedia explains why lifetime savings is a crucial metric in refinancing decisions.
Break-even Point
The number of months it will take for your monthly savings to cover the closing costs of refinancing. After this point, you begin to realize actual savings from refinancing. According to the Consumer Financial Protection Bureau, you should consider how long you plan to stay in your home when evaluating the break-even point.
Term Extension
Refinancing often resets your loan term (e.g., starting a new 30-year loan when you were 5 years into your original 30-year mortgage). This calculator shows how many years, if any, you're adding to your mortgage by refinancing.
Types of Mortgage Refinancing
Rate-and-Term Refinance
The most common type of refinancing, where you simply replace your existing mortgage with a new one that has a different interest rate, term length, or both. The primary goal is usually to save money through a lower interest rate or to change the loan duration. Bankrate offers more information about rate-and-term refinancing.
Cash-Out Refinance
A cash-out refinance allows you to tap into your home's equity by taking out a new mortgage for more than you currently owe, receiving the difference in cash. Homeowners often use this option to fund home improvements, pay off high-interest debt, or cover major expenses like education costs. NerdWallet explains the pros and cons of cash-out refinancing.
Cash-In Refinance
The opposite of a cash-out refinance, where you pay down a portion of your loan balance when refinancing to lower your loan-to-value ratio, potentially qualifying for better interest rates. This option might make sense if you're close to the 80% loan-to-value threshold to eliminate PMI or to qualify for more favorable loan terms. Rocket Mortgage explains when a cash-in refinance might be beneficial.
Streamline Refinance
Available for certain government-backed loans (FHA, VA, and USDA), streamline refinancing offers simplified application processes with reduced documentation, often without requiring a new appraisal. These programs are designed specifically to help borrowers take advantage of lower interest rates with minimal hassle. The Department of Housing and Urban Development provides details about FHA streamline refinancing.
When to Consider Refinancing
Interest Rates Have Dropped
One of the most common reasons to refinance is when market interest rates fall significantly below your current mortgage rate. A common rule of thumb is to consider refinancing if you can reduce your interest rate by at least 0.5 to 1 percentage point, though the exact threshold depends on your specific situation and closing costs. The Federal Reserve offers guidance on evaluating interest rate savings.
Your Credit Score Has Improved
If your credit score has significantly improved since you obtained your original mortgage, you might qualify for a lower interest rate now, even if market rates haven't changed much. Borrowers with excellent credit typically receive the most favorable mortgage terms. FICO provides a mortgage rate table showing how credit scores affect interest rates.
You Want to Change Your Loan Term
Refinancing allows you to shorten or extend your loan term. Shortening from a 30-year to a 15-year mortgage typically means higher monthly payments but substantial interest savings over the life of the loan. Conversely, extending your term reduces monthly payments but usually increases total interest paid. Forbes Advisor compares the impact of different loan terms.
You Want to Switch from an Adjustable to Fixed Rate
If you currently have an adjustable-rate mortgage (ARM) and interest rates are rising or expected to rise, refinancing to a fixed-rate loan can provide stability and protection against future rate increases. This is particularly valuable if you plan to stay in your home long-term. Chase explains the differences between ARM and fixed-rate mortgages.
You Need to Tap into Home Equity
If you've built substantial equity in your home and need funds for major expenses, a cash-out refinance can be an option with typically lower interest rates than other types of loans. However, it's important to consider that you're using your home as collateral. Bankrate explores when cash-out refinancing makes sense.
Costs of Refinancing
Refinancing isn't free, and these costs directly impact your break-even point and overall savings. Typical refinancing costs include:
- Application fee: $250-$500
- Origination fee: 0.5%-1.5% of loan amount
- Appraisal fee: $300-$600
- Credit report fee: $30-$50
- Title search and insurance: $700-$900
- Recording fee: $25-$500 (varies by location)
- Mortgage points: Optional, each point costs 1% of loan amount and typically lowers rate by 0.25%
Total closing costs typically range from 2% to 5% of the loan amount. Zillow provides a detailed breakdown of typical refinancing costs.
Refinancing Strategies
Rate-and-Term Strategy
This straightforward approach aims to lower your interest rate, change your term, or both, without changing your loan balance. The goal is typically to reduce monthly payments or total interest costs. For maximum lifetime savings, consider refinancing to a shorter term if you can afford the higher payments.
Debt Consolidation Strategy
Using a cash-out refinance to pay off high-interest debt like credit cards or personal loans can save money if your mortgage rate is significantly lower than your other debt rates. However, this strategy comes with risks, as you're converting unsecured debt to debt secured by your home. LendingTree discusses the pros and cons of this approach.
Investment Strategy
Some homeowners refinance to a lower rate and invest the monthly savings or use a cash-out refinance to invest the proceeds. This can be profitable if investment returns exceed the mortgage interest rate, but comes with risks. Investopedia examines the potential of this strategy.
No-Closing-Cost Strategy
Some lenders offer "no-closing-cost" refinancing, where closing costs are either rolled into your loan balance or covered through a higher interest rate. While this eliminates upfront costs, you'll pay more over time. This approach might make sense if you plan to sell or refinance again relatively soon. NerdWallet analyzes when no-closing-cost refinancing makes sense.
Frequently Asked Questions
How much can I save by refinancing?
Your potential savings depend on several factors, including the difference between your current and new interest rates, loan terms, closing costs, and how long you plan to stay in your home. Our calculator provides both monthly and lifetime savings estimates based on your specific inputs. For many homeowners, even a 0.5% reduction in interest rate can lead to significant savings, especially for larger loan balances. Bankrate's break-even calculator can help estimate your specific savings.
Will refinancing affect my credit score?
Refinancing typically causes a small temporary drop in your credit score due to the hard inquiry and new account. However, this effect is usually minimal and short-lived if you continue making timely payments. Applying with multiple lenders within a short timeframe (usually 14-45 days, depending on the scoring model) counts as a single inquiry for credit scoring purposes. Experian explains how refinancing affects credit scores.
How soon can I refinance after buying a home?
For conventional loans, there's typically no waiting period to refinance with a different lender, though your current lender might have waiting periods in your loan agreement. Government-backed loans have specific waiting periods: 7 months after closing for FHA streamline refinances, 6 months for VA loans, and 180 days for USDA loans. Cash-out refinances usually require waiting 6-12 months. Rocket Mortgage details various waiting periods by loan type.
Is there a limit to how many times I can refinance?
There's no legal limit to how many times you can refinance a mortgage, but there may be practical limitations. Lenders may require a waiting period between refinances (especially for cash-out refinances), and each refinance comes with closing costs that affect your overall savings. Repeated refinancing with new 30-year terms can keep you in debt longer than necessary, potentially costing more in the long run despite lower monthly payments. Chase Bank discusses refinancing frequency considerations.
Should I pay points when refinancing?
Paying discount points (prepaid interest) lowers your interest rate but increases your upfront costs. This makes sense if you'll keep the loan long enough for the interest savings to exceed the cost of the points. Calculate your break-even point by dividing the cost of points by your monthly savings. If you plan to stay in your home and keep the mortgage beyond this break-even point, paying points may be worthwhile. The CFPB explains how mortgage points work.
Can I refinance if my home value has decreased?
It's more challenging to refinance when your home value has decreased, as lenders typically require a certain loan-to-value ratio (LTV). However, government programs like HARP (Home Affordable Refinance Program) were designed specifically to help underwater homeowners refinance. Its successor, the High LTV Refinance Option (Fannie Mae) and HIRO (Freddie Mac), helps homeowners with little equity. For FHA loans, the FHA Streamline Refinance program may not require a new appraisal. HUD provides details on FHA streamline refinances.
How is a refinance different from a loan modification?
A refinance replaces your existing mortgage with a new loan, usually from a different lender, with new terms and rates based on current market conditions and your credit profile. A loan modification changes the terms of your existing loan without replacing it, typically arranged with your current lender when you're facing financial hardship. Refinancing generally requires good credit and equity, while modifications are often designed for struggling homeowners. The CFPB clarifies these differences.
Use our refinance calculator to make an informed decision about whether refinancing makes financial sense for your situation. Remember that the best refinancing strategy depends on your individual financial goals, whether that's lowering monthly payments, reducing overall interest, shortening your loan term, or tapping into home equity.