Cost to Refinance a Loan: Calculator and Benefits

This calculator estimates the monthly payment and total interest on a refinanced loan from its balance, APR, and term; enter the figures quoted for the new loan to see the results. The benefits of refinancing depend on how those figures compare with your existing loan and on costs the calculator does not include.

Formula

The calculator uses the standard fixed-payment loan formula. Monthly payment equals the loan principal multiplied by the monthly interest rate, divided by one minus (one plus the monthly rate) raised to the negative number of monthly payments:

Payment = P × r / [1 − (1 + r)−n]

• P is the refinanced loan amount, in dollars.
• r is the monthly rate, calculated as APR ÷ 1,200. APR is entered as a percentage per year.
• n is the term in months, calculated as years × 12.

Total interest is estimated as the monthly payment multiplied by the number of months, minus the principal: Total interest = Payment × n − P. The displayed payment is rounded to cents, and total interest uses that displayed payment. The formula assumes level monthly payments and a fixed rate.

Worked Example

Using the calculator’s default inputs—$20,000 principal, 8% APR, and a 5-year term:

1. Convert the APR to a monthly rate: 8 ÷ 1,200 = 0.0066667.
2. Convert the term to payments: 5 × 12 = 60 months.
3. Substitute into the payment formula: $20,000 × 0.0066667 ÷ [1 − (1.0066667)⁻⁶⁰] = $405.53 per month, rounded to cents.
4. Calculate total interest using the rounded payment: $405.53 × 60 − $20,000 = $4,331.80.

The estimated monthly payment is $405.53, and estimated total interest is $4,331.80.

Assumptions

• The interest rate stays fixed for the full term.
• Payments are made monthly, with the first payment one month after borrowing.
• Interest compounds monthly at APR ÷ 12.
• Fees, taxes, insurance, private mortgage insurance, and escrow are not included. The loan amount should reflect any costs added to the balance if you want to model them as financed principal.

What Refinancing Costs and Benefits Mean

Refinancing replaces an existing loan with a new one. The new loan pays off the old balance, and you then make payments under the replacement loan’s terms. “Cost to refinance” can mean the upfront charges required to close or complete the new loan, as well as the interest and payments over its lifetime. Those are different measures: a lower monthly payment does not automatically mean a lower overall cost.

Possible benefits include a lower payment, a shorter payoff period, a different rate structure, or consolidating debts into a single loan. Which benefits are available depends on the actual offer and loan type. A longer term can reduce the required monthly payment while increasing the time interest accrues. A shorter term can raise the payment even if the interest paid over the full schedule is lower.

How to Compare a Refinance

For a meaningful comparison, collect the payoff amount on the current loan, its remaining payment schedule, and the new loan’s written terms. Ask the lender for the APR, term, itemized fees, and any costs that would be added to the principal. The calculator estimates payments and interest from principal, APR, and term; it cannot infer these lender-specific figures.

• Compare the new payment with the current payment, while noting that the terms may have different lengths.
• Compare projected interest from today forward, not the interest already paid on the old loan.
• Include upfront charges and any financed fees when assessing total cost.
• Check whether the quoted payment includes only principal and interest or also taxes, insurance, or other amounts.

A simple break-even estimate divides refinance costs paid upfront by the monthly payment reduction. For example, $1,200 of costs divided by a $60 monthly reduction gives 20 months. This only estimates when cumulative payment savings equal the upfront cost; it does not account for different loan terms, changing balances, or the interest trade-off. It is not a substitute for comparing full schedules.

Limits and Common Misunderstandings

The calculator is a general amortization estimate, not a refinance-cost quote. It does not calculate closing charges, prepayment charges, taxes, insurance, escrow, or a payoff amount that may differ from the displayed balance. Some loans have variable rates or irregular payment schedules, which do not match its fixed-rate monthly formula. Get the exact numbers and assumptions from the lender’s loan estimate or disclosure.

One common misconception is that a lower payment proves a refinance saves money. It may simply reflect extending repayment over more months. Another is that the rate alone determines cost: principal, term, fees, and payment timing also matter. For an apples-to-apples comparison, use the same starting balance and compare costs over the same period, while separately considering the remaining balance at that point.

Frequently Asked Questions

How much does it cost to refinance a loan?
There is no single amount that applies to every loan. Costs depend on the loan and lender, and may include charges for processing, valuation, or other services. Request an itemized estimate rather than relying on a general figure.

Does refinancing always lower monthly payments?
No. A payment can rise if the new term is shorter, the principal is larger, or the new rate and fees produce a higher payment. Use the new loan’s actual principal, APR, and term to estimate its payment.

Can a lower payment mean I pay more overall?
Yes. Extending the repayment term may lower each payment but leave the loan accruing interest for longer. Compare total interest, fees, and the remaining balance—not just the monthly amount.

How do I estimate a refinance break-even point?
Divide upfront refinance costs by the monthly payment reduction to get a rough number of months. The result is limited: it does not capture differences in loan balances, terms, or interest over time.

Are refinance fees included in this calculator?
No. The calculator estimates principal-and-interest payments and interest only. Add financed fees to the principal to model their effect on the payment, and account separately for upfront costs.

This result is an estimate; the lender’s disclosure gives the exact figures.

Related

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• Loan-to-Value Ratio (LTV): Formula and Calculator
• Loan-to-Value Ratio (LVR): How It Works

in p | Loan amount | $ | 20000 | 1 | 100000000
in apr | Interest rate (APR) | % | 8 | 0.01 | 100
in yrs | Loan term | years | 5 | 0.0833 | 50
out pmt | Monthly payment | $ | p * (apr / 1200) / (1 - (1 + apr / 1200) ^ -(yrs * 12)) | 2
out int | Total interest | $ | pmt * yrs * 12 - p | 2