Refi calculator: when does refinancing pay off?

How this refi calculator decides if refinancing is worth it

It compares the two loans over the years you expect to keep the new one, counting both what you pay and what you still owe at the end. A lower payment alone can mislead: the CFPB points out that a refinance starts a new loan term, so a smaller payment can still mean paying more in total.^[2] Three numbers settle it:

The last row is the catch with restarting at 30 years: the savings are real while you hold the loan, but if you keep it to the end you make 36 more payments than you had left.

Refinance break-even: closing costs ÷ monthly savings

Break-even is the number of months of lower payments it takes to repay what the refinance cost. The CFPB's home loan toolkit says refinancing costs can be about the same as the closing costs on your original purchase loan, and gives a rule of thumb: go ahead only if the new rate saves that amount in about two years.^[1]

Break-even months = closing costs ÷ (old payment − new payment)$6,000 ÷ $261.04 = 23.0 months

The CFPB adds a caution for anyone who may move: if you sell within a few years, you might not have time to recoup the cost.^[2] Put your realistic horizon in the last field of the calculator.

Choosing the new term

Matching the new term to the years you have left gives a fairer comparison than starting over at 30. The CFPB notes that lenders can often offer a custom term, such as 22 years instead of 30.^[2] The same $320,000 at today's averages:^[3]

At 27 years the payment falls by $190 and break-even takes 32 months, but every month saved is a real saving because the payoff date does not move. A shorter term raises the payment and cuts total interest sharply; the early payoff calculator shows how to get a similar result by paying extra instead.

Cash-out refinancing limits

A cash-out refinance replaces your mortgage with a larger one and pays you the difference, so its limit is a maximum loan-to-value. Fannie Mae's eligibility matrix sets these maximums for a fixed-rate loan:^[4] The cash-out refinance calculator works out the most cash you can take and compares it with keeping your mortgage and adding a HELOC.

So on a $400,000 home, cash-out tops out at a $320,000 loan. Check your position with the LTV calculator. If you only need part of your equity and your current rate is lower than today's, a HELOC leaves the first mortgage alone; refinancing a HELOC compares the routes when both loans exist.

Costs and rules that come with a refinance

• Closing costs again. You pay most of the same fees as on a purchase loan; the closing cost calculator groups them as the Loan Estimate does.^[1]
• Prepayment penalties. Federal rules allow a penalty only on certain fixed-rate qualified mortgages, never after three years, and capped at 2% in the first two years and 1% in the third.^[5] FHA loans can be prepaid in any amount without a charge,^[6] and VA loans without premium or fee.^[7]
• Right to cancel. The Truth in Lending Act gives you three days to rescind a refinance after you receive a proper notice of that right.^[1]
• Rolled-in costs. Adding the costs to the loan avoids cash at closing but raises the balance; choose Add to the loan to see the effect on the payment and on break-even.

Worked example

1. Current payment: $320,000 at 8% over 324 months = $2,413.70.
2. New payment: $320,000 at 7.11% over 360 months = $2,152.66; savings $261.04 a month.
3. Break-even: $6,000 ÷ $261.04 = 23.0 months, inside the CFPB's two-year guide.
4. After 7 years: you would owe $288,568 on the old loan or $292,167 on the new one; counting payments and costs, the refinance leaves you $12,327 ahead.