Refinance Cost Calculator: Compare Break-Even Costs

This refinance cost calculator estimates a new loan’s monthly principal-and-interest payment and total interest, then compares those amounts with your current loan and estimated refinance costs to show a simple break-even period. Enter the current balance, current loan terms, proposed refinance terms, and estimated costs; the result is an arithmetic comparison, not a prediction of approval or a recommendation.

Formula

The calculator compares level monthly principal-and-interest payments on the same assumed balance. For either loan, the payment is:

Payment = P × r / [1 − (1 + r)−n]

• P is the assumed loan balance in dollars.
• r is the monthly interest rate, calculated as annual APR divided by 1,200.
• n is the number of monthly payments: months remaining for the current loan, or new term in years multiplied by 12.

The calculator rounds each payment to cents. Monthly payment difference is current payment minus proposed payment. Simple break-even time is upfront estimated costs divided by that monthly difference. A positive difference means the modeled new payment is lower; a negative or zero difference does not produce a meaningful positive break-even period. This calculator’s formula cannot display a useful break-even result when the new payment is equal to or higher than the old one.

Worked Example

Using the defaults, the assumed balance is $250,000. The current APR is 6.5%, the current loan has 240 months remaining, the proposed APR is 5.75%, the proposed term is 20 years (240 months), and estimated upfront costs are $5,000.

1. Convert the proposed APR to a monthly rate: 5.75 ÷ 1,200 = 0.0047916667.
2. Calculate the new payment: $250,000 × 0.0047916667 ÷ [1 − (1 + 0.0047916667)⁻²⁴⁰] = approximately $1,756.43 per month.
3. Convert the current APR: 6.5 ÷ 1,200 = 0.0054166667. Calculate the current payment over 240 months: $250,000 × 0.0054166667 ÷ [1 − (1 + 0.0054166667)⁻²⁴⁰] = approximately $1,863.40 per month.
4. Subtract the payments: $1,863.40 − $1,756.43 = $106.97 per month.
5. Divide estimated costs by monthly difference: $5,000 ÷ $106.97 = 46.7 months, or about 47 months when rounded to one decimal place.

The outputs are estimates from the displayed formula and rounded inputs. Actual payment quotes may differ due to the lender’s loan amount, rate, payment schedule, and included charges.

Assumptions

• Both loans have a fixed annual APR for the modeled period.
• Payments are equal monthly payments made at the end of each month.
• Interest is compounded monthly using APR divided by 12.
• The comparison assumes the same balance for both loans; refinance costs are treated as an upfront amount, not added to the new balance.
• Fees not entered, taxes, insurance, mortgage insurance, escrow, and any other changes to the balance or payment are not included.

How to Compare Refinance Costs

A refinance comparison is more than a payment comparison. A lower monthly payment can result from a lower rate, a longer repayment term, or both. Extending the term may reduce the monthly amount while increasing the number of payments and potentially the total interest paid. Conversely, keeping a similar term can make the payment comparison more directly reflect the rate and balance assumptions.

Gather figures from the current loan statement and a written estimate for the proposed loan. Use the current principal balance rather than the original amount borrowed, and use the number of payments actually left. Enter an estimated cost figure that matches how you intend to model charges. If costs are financed, they increase the new loan balance; this calculator instead treats them as paid upfront, so do not enter financed costs as though they were paid separately without adjusting the balance.

For a fuller comparison, calculate total remaining payments on the current loan and total proposed payments, then account for upfront costs and the time you expect to keep the loan. This calculator intentionally shows the monthly difference and simple break-even only; it does not calculate total interest for both loans or account for the time value of money. A break-even month is not the same as an overall savings figure.

What the Break-Even Result Means

If the result is about 47 months, the simple arithmetic says cumulative monthly payment differences would equal the entered $5,000 upfront cost after roughly 47 months, assuming the modeled payment difference remains unchanged. It does not mean that every dollar after that point is net savings. Loan balances, remaining terms, costs, and the value of payments at different times also matter.

Check whether the quoted payment includes only principal and interest. Property-related taxes, insurance, mortgage insurance, escrow deposits, and other charges can affect the total monthly amount but are outside this calculation. Also compare the new principal balance with the current payoff amount: accrued interest, costs added to the balance, or cash taken out can make the balances differ. A fair comparison may require using the actual new amount financed rather than the current balance.

Common Limits and Input Mistakes

• APR versus monthly rate: Enter the annual percentage as a percent, such as 5.75, not as 0.0575 or as a monthly rate.
• Term units: Current time remaining is entered in months; the new term is entered in years. A 20-year term corresponds to 240 payments.
• Comparing unlike balances: The calculator holds the balance constant for both payments. If the proposed loan includes added costs or cash out, update the comparison using the actual amount financed.
• Assuming all costs are included: Use a lender estimate to identify charges, and avoid counting a cost twice if it is already included in the proposed balance or payment.
• Treating break-even as a guarantee: It is a simplified estimate based on constant payments and upfront costs. It does not model a future sale, early payoff, changing rates, taxes, or loan-balance differences.

Rounding matters most when the monthly difference is small: a small change in payment can shift the calculated break-even substantially. Use precise lender figures when available, but remember that quoted terms and costs can change before closing.

Frequently Asked Questions

How do I calculate refinance break-even?
Divide estimated upfront refinance costs by the reduction in monthly payment. This simple method is meaningful only when the new modeled payment is lower and the costs and payment difference are entered consistently.

Should refinance costs be added to the loan balance?
This calculator assumes costs are paid upfront and does not add them to the balance. If costs are financed, the new principal is higher; use that actual amount in a comparison designed for the financed balance.

Does a lower refinance payment mean I pay less overall?
Not necessarily. A longer term can lower the monthly payment while extending repayment. Compare the remaining payment schedule, total interest, costs, and expected time with the loan—not only the monthly amount.

What costs should I enter?
Use the estimated costs you want included in the comparison, based on the lender’s written figures. Confirm whether each charge is paid upfront, financed into the balance, or already reflected elsewhere so it is not omitted or counted twice.

Why is there no useful break-even result?
If the proposed payment is equal to or higher than the current modeled payment, dividing costs by monthly savings cannot produce a meaningful positive break-even period. Recheck the rates, balance, remaining months, proposed term, and cost treatment.

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

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in bal | Current loan balance | $ | 250000 | 1 | 100000000
in capr | Current interest rate (APR) | % | 6.5 | 0.01 | 100
in crem | Current months remaining | months | 240 | 1 | 600
in napr | New interest rate (APR) | % | 5.75 | 0.01 | 100
in nrem | New loan term | years | 20 | 0.0833 | 50
in fee | Estimated refinance costs paid upfront | $ | 5000 | 0 | 10000000
out pmt | New monthly principal-and-interest payment | $ | round(bal * (napr / 1200) / (1 - (1 + napr / 1200) ^ - (nrem * 12)), 2) | 2
out old | Current monthly principal-and-interest payment | $ | round(bal * (capr / 1200) / (1 - (1 + capr / 1200) ^ - crem), 2) | 2
out save | Monthly payment difference | $ | old - pmt | 2
out be | Simple break-even time | months | fee / (old - pmt) | 1