Loan Refinance Interest Savings Calculator

This calculator estimates how much interest a refinanced loan could save—or cost—by comparing the remaining interest on your current loan with interest on a proposed replacement loan. Enter the current balance, current APR and remaining term, then the new APR and term; the results show the interest difference and the new monthly payment.

Formula

The calculator estimates interest for each loan using a fixed monthly payment and subtracts the proposed loan’s interest from the current loan’s remaining interest:

Monthly payment = P × r ÷ [1 − (1 + r)⁻ⁿ]
Total interest = monthly payment × n − P
Interest savings = current-loan interest − refinance-loan interest

• P is the balance refinanced, in dollars. For a simple comparison, the calculator uses the same entered balance for both options.
• r is the monthly rate, calculated as APR ÷ 1,200 when APR is entered as a percentage per year.
• n is the number of monthly payments: years × 12.

A positive savings result means the modeled refinance has less interest over its stated term; a negative result means it has more. The figure is an interest comparison, not a complete measure of the total financial effect of refinancing.

Worked Example

Using the calculator’s defaults: balance $20,000; current APR 9%; current remaining term 5 years; proposed APR 7%; proposed term 4 years.

1. Convert the current APR to a monthly rate: 9 ÷ 1,200 = 0.0075. The term is 5 × 12 = 60 payments.
2. Current monthly payment = $20,000 × 0.0075 ÷ [1 − (1.0075)⁻⁶⁰] ≈ $415.17. Total interest = $415.17 × 60 − $20,000 = $4,910.20.
3. Convert the proposed APR: 7 ÷ 1,200 ≈ 0.00583333. The term is 4 × 12 = 48 payments.
4. Proposed monthly payment = $20,000 × 0.00583333 ÷ [1 − (1.00583333)⁻⁴⁸] ≈ $479.18. Total interest = $479.18 × 48 − $20,000 = $3,000.64.
5. Estimated interest savings = $4,910.20 − $3,000.64 = $1,909.56.

The calculator displays payments and interest to cents. Because its interest expression uses the unrounded payment formula internally, displayed component totals can differ by a few cents from totals recalculated using a rounded monthly payment.

Assumptions

• Each loan has a fixed APR and equal monthly payments.
• Payments are made monthly; the first payment follows the usual amortization schedule.
• Interest compounds monthly using APR ÷ 12.
• Fees, taxes, insurance, escrow, penalties, and changes in balance are not included.

How to Interpret Refinance Interest Savings

The result isolates interest under the entered loan terms. It does not automatically account for refinancing costs or changes in the amount borrowed. If an origination charge or other cost is added to the new principal, for example, the new balance would be higher than the current balance used here. Entering that higher amount as the balance can help illustrate the effect on modeled interest, but the calculator does not separately identify or assess fees.

Term length matters alongside APR. A lower rate can still produce more total interest if repayment is extended sufficiently, because interest accrues over more months. A shorter term can reduce total interest while increasing the monthly payment. The example demonstrates this trade-off: its proposed term is shorter, so its payment is higher even though modeled total interest is lower.

Compare like with like. Use the payoff balance for the date the replacement loan would begin, rather than the original amount borrowed, and use the remaining term on the existing loan. For a proposed loan, enter the actual quoted APR and term supplied by the lender. If a quote includes financed fees, its starting principal may differ from the payoff balance.

Costs, Break-Even, and Important Limits

Interest savings are not the same as net savings. To make a broader comparison, identify all costs that apply to the proposed loan and consider how they are paid. A basic break-even estimate divides upfront costs by the monthly payment reduction, but that calculation only describes how long the payment difference takes to equal those costs. It does not account for the changed term, total interest, or the time the borrower keeps the loan.

This calculator compares total interest over each full stated term. It does not model extra payments, variable rates, skipped or irregular payments, a changing balance, or an early payoff. If the current loan is nearly paid off, refinancing resets the comparison around a new schedule; looking only at the new payment may obscure the cost of extending repayment. The lender’s formal disclosures and payoff figures provide the details needed to assess the actual transaction.

• Check that the current balance is the amount being refinanced, not the original loan principal.
• Use APR consistently and verify whether any quoted costs are included in the new balance.
• Compare both monthly payments and total interest; one figure does not replace the other.
• Do not treat a positive calculator result as guaranteed savings: actual fees, timing, and loan terms can change the outcome.

Frequently Asked Questions

How do I calculate interest savings from refinancing?
Estimate remaining interest on the current loan, estimate interest on the replacement loan, then subtract the latter from the former. Include applicable costs separately for a fuller comparison.

Can refinancing lower my payment but increase total interest?
Yes. A longer repayment term can lower the required monthly payment while increasing the number of months interest accrues.

Does this calculator include refinance fees?
No. Fees, taxes, insurance, and other transaction costs are excluded. Check the lender’s figures and account for costs separately.

Should I use my original loan amount or current payoff balance?
Use the balance expected to be refinanced. The original principal may be different after payments have reduced the balance.

What does a negative savings result mean?
It means the proposed loan’s modeled interest is greater than the current loan’s modeled remaining interest under the inputs entered. It does not include excluded costs or other loan features.

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

Related

• Qualified Account Balance: Meaning and Calculation
• What Increases Your Total FAFSA Loan Balance?
• Bank-Qualified Loan: Meaning and Payment Calculator

in bal | Current loan balance | $ | 20000 | 1 | 100000000
in oldapr | Current APR | % | 9 | 0.01 | 100
in oldyrs | Current remaining term | years | 5 | 0.0833 | 50
in newapr | Refinance APR | % | 7 | 0.01 | 100
in newyrs | Refinance term | years | 4 | 0.0833 | 50
out save | Interest savings (positive means less interest) | $ | (bal * (oldapr / 1200) / (1 - (1 + oldapr / 1200) ^ -(oldyrs * 12)) * oldyrs * 12 - bal) - (bal * (newapr / 1200) / (1 - (1 + newapr / 1200) ^ -(newyrs * 12)) * newyrs * 12 - bal) | 2
out pay | New monthly payment | $ | bal * (newapr / 1200) / (1 - (1 + newapr / 1200) ^ -(newyrs * 12)) | 2
out oldint | Current loan interest remaining | $ | bal * (oldapr / 1200) / (1 - (1 + oldapr / 1200) ^ -(oldyrs * 12)) * oldyrs * 12 - bal | 2
out newint | Refinance loan interest | $ | bal * (newapr / 1200) / (1 - (1 + newapr / 1200) ^ -(newyrs * 12)) * newyrs * 12 - bal | 2