Whether a refinance pays for itself.
A lower payment isn’t the whole answer. See how long the costs take to earn back, what the loan costs in total, and the move that usually beats both.
Refinance break-even
A lower payment, but more interest over the life of the loan.
- Payment today
- $2,956.00
- New payment
- $2,462.87
- Costs (fees and points)
- $3,500.00
- Cash at closing
- $3,500.00
- New loan
- $400,000.00
Over the whole loan
- Today’s loan, 25 years left: interest
- $486,769
- New loan: interest
- $486,632
- Refinancing costs more, in total
- $3,363
Refinance, then keep paying today’s payment
Pay the extra $493 a month on the new loan and it’s gone in 19 years 7 months, with $294,238 of interest. That saves $189,031 against keeping today’s loan, after the costs.
Break-even, and why it isn’t the whole answer
The break-even is the costs (closing costs plus points) divided by the monthly saving. It only counts while both loans would still exist: a refinance that earns its costs back in year 26 of a loan with 25 years left doesn’t pay.
A new 30-year loan restarts the clock, so a lower payment can still mean more interest in total. That’s why the answer has three outcomes: it costs less over the loan; it lowers the payment but costs more in total; or it doesn’t pay.
The move that usually beats both
Refinance, then keep paying today’s payment. The difference goes to principal, and the new loan is gone years sooner.
Your time left is worked out from the balance, rate and payment on your statement, since few people know their remaining term to the month. Enter principal and interest only, without escrow.
An estimate to plan with, not a Loan Estimate, a pre-approval or advice. Lenders, counties and insurers set the real figures; check them before you act.
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RichDue keeps your mortgage on its own page with the balance, the rate and what paying extra does, and runs the refinance against your plan.