Cost to Refinance a Loan: Fees and Break-Even

The cost to refinance a loan is the sum of any fees and charges for replacing the existing loan, plus any costs that are added to the new balance. This calculator estimates a new loan’s monthly payment and total interest from its amount, APR, and term; it does not calculate refinance fees or savings, so enter a loan amount that reflects the costs you want to include.

Formula

This calculator uses the standard fixed-rate, fully amortizing loan payment formula. It estimates the payment and interest on the proposed refinanced balance; it does not produce a complete quote of refinance costs.

• Monthly payment: M = P × r ÷ [1 − (1 + r)⁻ⁿ].
• Total interest: I = M × n − P.
• Monthly rate: r = APR ÷ 1,200.
• Number of payments: n = years × 12.

P is the new loan principal in dollars, APR is the annual percentage rate entered as a percent, r is the monthly rate as a decimal, n is the number of monthly payments, M is the monthly payment in dollars, and I is total interest in dollars. The payment expression uses unrounded arithmetic internally; displayed results are rounded to cents. Total interest is calculated from the displayed, cent-rounded payment.

Worked Example

Using the calculator’s defaults: P = $20,000, APR = 8%, and term = 5 years.

1. Convert APR to a monthly rate: r = 8 ÷ 1,200 = 0.0066667.
2. Convert the term to monthly payments: n = 5 × 12 = 60.
3. Apply the payment formula: M = 20,000 × 0.0066667 ÷ [1 − (1.0066667)⁻⁶⁰] ≈ $405.53 per month.
4. Calculate interest using the displayed payment: I = $405.53 × 60 − $20,000 = $4,331.80.

These figures describe the example loan’s scheduled payments and interest under the stated assumptions. They do not mean the refinance itself costs $4,331.80: that is interest over the full five-year term, not a fee total.

Assumptions

• The interest rate is fixed for the entire entered term.
• Payments are monthly, with the first payment one month after the loan begins.
• Interest compounds monthly at APR divided by 12.
• Fees, taxes, insurance, escrow, prepayment charges, and changes in the old loan’s payoff amount are not included unless represented in the loan amount you enter.

What Makes Up Refinance Costs?

“Cost to refinance” can mean either the one-time expense of arranging a new loan or the total amount paid over its life. Keep those meanings separate. A refinance may involve charges associated with reviewing an application, valuing or documenting collateral, preparing the loan, and paying off the current balance. Which charges apply depends on the loan and lender; request an itemized estimate rather than assuming every possible charge will appear.

• Lender charges: Items for processing, underwriting, or originating the replacement loan, if charged.
• Valuation and records: An appraisal or other property valuation and costs to obtain or record documents may apply to some secured loans.
• Third-party services: Charges for services used to assess, document, or complete the transaction may be listed separately.
• Payoff-related amounts: The payoff quote on the current loan can include unpaid principal and accrued interest. Ask whether any additional contract or account charges apply.
• Prepaid items: Some transactions collect amounts for future expenses or establish an account reserve. These affect cash due at closing but are not necessarily lender fees.

Ask for a written breakdown that distinguishes charges paid upfront from amounts financed into the new balance. A “no-cost” offer may mean certain charges are offset through another arrangement, such as a different rate, or included in the loan amount; it does not establish that the transaction has no economic cost.

How the Calculator Relates to Fees

The calculator does not have a separate fee input. To estimate the payment on a proposed refinance, use the expected new principal: commonly, that figure is based on the amount needed to pay off the old loan plus any costs you choose to finance. Obtain the payoff figure and the lender’s itemized charges before deciding what number to enter. Do not add costs paid in cash to the principal unless you are deliberately modelling them as borrowed money.

For example, if a hypothetical payoff is $20,000 and $1,000 of charges are financed, the amount to model is $21,000. At the same APR and term, the payment and total interest will be higher than for a $20,000 balance. This example illustrates the arithmetic only; actual charges and rates must come from the lender. The calculator also assumes a full term of equal monthly payments, so it does not compare the remaining payments on your current loan with a new schedule.

Comparing Costs and Common Pitfalls

A lower monthly payment does not by itself show that refinancing reduces total cost. A longer term can lower each scheduled payment while increasing the number of payments and potentially the total interest. Conversely, a shorter term can mean a higher monthly payment but fewer payments. To compare options, gather figures for both loans over a consistent period and account for upfront costs, financed fees, remaining payments, and how long you expect to keep the loan. This calculator alone cannot determine which option has the lower overall cost.

• Compare the new loan’s APR and term with the written offer, not a headline payment alone.
• Check whether fees are paid in cash or added to principal; financed fees can also accrue interest.
• Use the lender’s payoff figure rather than the old statement balance, which may not reflect interest through the payoff date.
• Do not treat escrow deposits or prepaid expenses as interchangeable with lender charges.
• Round only when reading the displayed results. Small differences may arise if a lender uses payment dates, rounding, or a calculation convention that differs from this simplified model.

A break-even calculation is sometimes used to ask how long it takes for estimated monthly savings to equal upfront costs: divide upfront costs by monthly savings, when savings are positive. That simple ratio ignores timing, changing balances, and other differences between loan schedules. It is a rough comparison, not a complete cost analysis, and cannot be calculated from this calculator without figures for the existing loan and refinance charges.

Frequently Asked Questions

How much does it cost to refinance a loan?
There is no single amount that applies to every refinance. Costs depend on the loan, the lender’s itemized charges, any third-party services or prepaid items, and whether costs are paid upfront or added to the balance. Request a written estimate for the specific transaction.

Does refinancing cost money if fees are rolled into the loan?
Rolling fees into the new balance avoids paying those amounts upfront, but it increases the principal and may increase interest over time. It changes when and how costs are paid; it does not make them disappear.

Is the new monthly payment the cost of refinancing?
No. A monthly payment is one part of the loan’s cash flow. It includes principal and interest under this calculator’s assumptions, while refinance charges, prepaid items, and the old loan’s payoff are separate considerations.

How do I estimate a refinance break-even point?
Divide eligible upfront costs by estimated monthly savings, if the new payment is lower. The result is a rough number of months, not a guarantee of savings; it omits differences in loan balances, term, timing, and costs not included in the calculation.

Does this calculator include refinance fees?
No. It estimates payment and total interest for the principal, APR, and term entered. You can model financed charges by including them in the loan amount, but the calculator cannot identify or verify the charges.

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

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• NZ Home Loans: Loan-to-Value Ratio Calculator

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