Loan Refinance Interest Rates: How to Compare Costs

This loan refinance calculator estimates the monthly payment and total interest on a refinanced loan from the loan amount, annual percentage rate (APR), and term you enter. Use it to compare payment arithmetic across scenarios; it does not predict the rate a lender may offer or decide whether refinancing suits your circumstances.

Formula

For a fixed-rate loan with equal monthly payments, the monthly payment is calculated from the principal, monthly interest rate, and number of payments:

Payment = round[P × r ÷ (1 − (1 + r)⁻ⁿ), 2]

• P is the loan amount, in dollars.
• r is the monthly interest rate as a decimal: APR ÷ 1,200. For an 8% APR, r = 0.08 ÷ 12.
• n is the number of monthly payments: years × 12.

Total interest in this calculator is monthly payment × number of payments − principal. Because the payment is rounded to cents first, the total reflects that rounded payment. The formula assumes a fixed APR and a fully amortizing loan: each scheduled payment covers interest due and reduces the balance over the stated term.

Worked Example

Using the calculator’s default inputs—$20,000, an 8% APR, and 5 years:

1. Convert APR to a monthly decimal rate: r = 8 ÷ 1,200 = 0.0066667.
2. Convert the term to payments: n = 5 × 12 = 60.
3. Substitute: payment = round[20,000 × 0.0066667 ÷ (1 − (1.0066667)⁻⁶⁰), 2] = $405.53 per month.
4. Total of scheduled payments = $405.53 × 60 = $24,331.80.
5. Estimated total interest = $24,331.80 − $20,000 = $4,331.80.

These are formula outputs, not a quote. A lender’s payment schedule may differ if its APR, balance, fees, payment dates, or rounding method differs.

Assumptions

• The interest rate is fixed for the full term.
• Payments are equal, made monthly, and treated as on time; the formula does not model specific calendar dates.
• Interest compounds monthly at APR ÷ 12.
• Fees, taxes, insurance, mortgage insurance, escrow, and any costs added to the refinanced balance are not included.

How Refinance Rates Affect the Comparison

A refinance replaces an existing loan with a new one. The new loan’s rate is only one part of the comparison: the amount refinanced, repayment term, fees, payment timing, and any change in loan features also affect the dollars paid. A lower monthly payment alone does not establish that the total cost is lower. Extending repayment can reduce the scheduled payment while increasing the number of months interest accrues.

Rates offered to an individual borrower are not determined by this calculator. A lender sets its offer using its own process and the application details it considers. The rate can also differ by loan type and terms. Market commentary or an advertised starting rate is not a substitute for a written, borrower-specific offer. For a meaningful calculation, enter the actual APR, amount financed, and term from the documents being compared.

APR is intended to express borrowing cost as an annual rate, but the exact components reflected in a quoted APR can depend on the loan and disclosure. Compare the lender’s stated APR and itemized costs, and check whether any fees are paid upfront or added to the new balance. Do not assume that a quoted interest rate and APR are interchangeable.

Comparing a Refinance With an Existing Loan

To understand the financial difference, compare the remaining cost of the current loan with the new loan’s costs over the same relevant period. The current loan’s original amount and term are not enough: use its current payoff balance, remaining payment schedule, and any applicable payoff amount supplied by the servicer. For the refinance, use the new amount financed, APR, term, and fees. This calculator estimates the new loan’s payment and interest, but does not calculate the old loan’s remaining interest or a break-even date.

For example, a longer new term can make its monthly payment smaller even if the borrower pays interest for more months. Conversely, a shorter term can raise the monthly payment while reducing the period over which interest accrues. To compare the total cash outlay accurately, account for upfront costs as well as scheduled payments; if fees are financed, they can also increase the principal on which interest is calculated.

Choosing Inputs and Understanding Limits

Use the amount that would actually be financed, not automatically the original loan amount. If closing or origination costs are added to the balance, include them in the amount only when the lender’s figures show they are financed. Enter APR as a percentage per year—for example, enter 8 for 8%, not 0.08. The term is in years, and the calculator converts it to monthly payments.

• Use a consistent set of figures from the same loan offer.
• Check whether the quoted payment includes only principal and interest or also other charges.
• Keep extra payments, skipped-payment arrangements, variable rates, and irregular payment dates out of this fixed-payment estimate.
• Compare totals at the same point in time if the loans have different terms.

Small differences can arise from cent rounding, lender-specific accrual conventions, or payment dates. The calculator also does not model adjustable rates, prepayment charges, optional insurance, or changes in balance. Its result is not a forecast of approval, a personalized rate, or a recommendation to refinance.

Frequently Asked Questions

Will refinancing always lower my interest rate?
No. A new rate depends on the actual offer and loan details, and it may be higher or lower than the rate on the existing loan. The calculator compares only the APR you enter.

Can my payment fall while total interest rises?
Yes. A longer repayment term can spread payments over more months and lower the scheduled monthly amount, while leaving more time for interest to accrue. Compare both monthly payment and total cost.

Is APR the same as the interest rate?
Not necessarily. APR is an annualized measure shown in loan disclosures and may reflect specified borrowing costs beyond the stated interest rate. Check the lender’s explanation of what is included in each figure.

Does this calculator include refinance fees?
No. It uses the loan amount, APR, and term only. Review itemized lender costs and determine whether they are paid separately or included in the amount financed before comparing scenarios.

How do I know when refinancing breaks even?
This calculator does not find a break-even point. A basic comparison needs the refinance costs and the change in payment or borrowing cost over time, along with a consistent comparison period. The lender’s documents provide the figures to examine.

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

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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 | $ | round(p * (apr / 1200) / (1 - (1 + apr / 1200) ^ -(yrs * 12)), 2) | 2
out int | Total interest | $ | pmt * yrs * 12 - p | 2