The two ways a "good" refinance goes wrong
Leaving before break-even. Closing costs are paid up front; savings arrive monthly. Sell the house, move, or refinance again before the break-even month and you paid for savings you never collected. Be pessimistic about how long you'll really stay.
The term reset. A payment that drops from $1,706 to $1,499 looks like an easy win — but if it came from stretching 26 remaining years back to 30, you bought that relief with four extra years of payments. The lifetime table above catches this: compare "remaining interest" on both sides, not just the payment. Shorter-term refinances (20 or 15 years) often keep the payment close to current while cutting lifetime interest dramatically.
Frequently asked questions
When is refinancing worth it?
Two tests must pass. First, break-even: closing costs divided by monthly savings tells you how many months until the refinance has paid for itself — if you might sell or refinance again before that month, it loses money. Second, lifetime cost: a lower payment on a longer term can still cost more overall because you restart the clock. This calculator shows both numbers.
What is the break-even point on a refinance?
The month when your accumulated payment savings equal the closing costs you paid. Example: $5,000 in costs and $278 monthly savings → break-even at month 18. Stay in the loan longer than that and the refinance is profitable; leave earlier and it never pays off.
How much are refinance closing costs?
Typically 2–6% of the loan amount — appraisal, origination, title work, and recording fees. On a $250,000 balance that’s roughly $5,000–$15,000. Lenders may offer "no-closing-cost" refinances that bury the costs in a higher rate; you can model that here by setting costs to $0 and using the higher quoted rate.
Should I roll closing costs into the loan?
Financing the costs means no cash out of pocket, but you pay interest on them for the life of the loan. Tick the checkbox above to see both versions — the payment difference is usually small, the lifetime difference less so.
Does refinancing restart my 30-year term?
Only if you choose a new 30-year term. That’s the most common hidden cost: five years into a 30-year loan, refinancing into a fresh 30-year stretches your remaining 25 years back to 30. Compare a 20- or 15-year term in the calculator — often the payment is similar to your current one while the lifetime savings are far larger.
How far do rates need to drop to make refinancing worthwhile?
The old rule of thumb said 1 percentage point; the real answer depends on your balance, costs, and how long you’ll stay. Big balance + low costs + long stay can justify half a point; small balance + high costs may not justify two points. Run your actual numbers — that’s the whole purpose of the break-even figure.
Does refinancing hurt my credit score?
Slightly and temporarily: a hard inquiry plus a new account typically dings a score a few points for a few months. Rate-shopping multiple lenders within a short window (14–45 days depending on the model) counts as a single inquiry.
Does this calculator include taxes and insurance?
No — deliberately. Refinancing changes only your principal-and-interest payment; property taxes and homeowners insurance follow your home, not your loan. Comparing P&I to P&I keeps the decision clean. For the full monthly picture, use our mortgage calculator.
Related calculators
- Mortgage Calculator — Estimate your full monthly payment — principal, interest, property taxes, insurance, PMI, and HOA — with a complete amortization schedule.
- Loan Payoff Calculator — See how extra payments shorten your loan and how much interest you save.
- Debt Snowball Calculator — Compare the snowball and avalanche payoff methods side by side across all your debts.
- Auto Loan Calculator — Estimate car payments including trade-in value and state sales tax.
Disclaimer: Educational purposes only — not financial advice or a loan offer. Actual rates and costs vary by lender and credit profile. See our Terms of Use.