This page answers only one question
This page does one job: tell you how many months of monthly savings it takes to earn back the closing costs on a refinance, with a lifetime-interest delta so the term-extension trap can't hide. For the full refinance decision — rate, term, cash-out, payoff date, and total interest side by side — use the refinance calculator.
Two views of the same refi
Most refi calculators show one number — usually monthly savings — and stop. That answers a real question (“will my paycheck go further this month?”) but ducks the harder one (“will I pay more total over the life of the loan?”). Both matter, and they often disagree. This calculator returns both, plus a verdict that names which kind of refi you're looking at.
Strict win — monthly down + total down
Your monthly drops, lifetime interest drops below closing costs. No catch. This is the “rate dropped 1+ point, kept the term the same, modest closing costs” case. Just do it.
Term extension — monthly down, total up
Lower payment, more total cost. The classic “refi a 25y remaining mortgage into a fresh 30y at a lower rate” trap. Worth it for cash flow relief — not worth it if your goal is actually paying off the debt cheaper. Keep the new term equal to your remaining months on the old loan and you usually flip this into a strict win.
Term shortening — monthly up, total down
Higher monthly because the new amortization compresses, but the rate cut more than covers closing costs over the life of the loan. The 30y → 15y refi shape. Right answer if you can absorb the higher payment; wrong answer if it eats your safety margin.
Refi loses — both directions are bad
Closing costs eat through the savings on both views. Walk away unless the lender meaningfully sweetens the offer (lower rate, lower fees, or both).
What our calculator assumes (so the numbers reconcile)
- Both loans are standard amortizing loans. Interest accrues monthly at
APR/12, payments are level for the term. - Closing costs are paid up-front out of pocket, not rolled into the new balance. If your quote rolls them in, reduce the “balance owed” input by that amount and zero out closing costs.
- No prepayment penalty on the current loan. If yours has one, add the penalty to closing costs.
- No tax-deductibility shifts. If you itemize and your mortgage interest is deductible, the after-tax savings are a few percentage points smaller than the headline.
- Both loans pay only the minimum. Extra payments on either side can shift the answer — for that comparison, see the refinance vs. prepay guide.
FAQ
How is break-even actually calculated?
It's the simplest math in personal finance: closing costs ÷ monthly savings = months to break even. If you're paying $5,000 to refi and the new monthly payment is $200 lower, you're even at month 25 — every month after that is pure savings. The catch is that this only counts cash flow. It doesn't capture whether you're paying more total interest because the term got extended. The lifetime-savings number on this calculator surfaces both, so the term-extension trap doesn't sneak past you.
What's the term-extension trap and why does it matter?
If you're 5 years into a 30-year mortgage and you refinance back to a fresh 30-year loan at a lower rate, your monthly payment drops (good) and your total interest paid often goes UP (bad). You stretched the loan from 25 years remaining to 30 years and are now paying interest for 5 extra years. Most refi calculators only show the monthly drop and bury the term issue. Ours computes both and tells you which is which. The fix when you want both monthly relief AND total savings: refinance into a term that matches your remaining months on the old loan, not a fresh long term.
What closing costs should I expect by loan type?
Rough industry medians: personal loans about 1-8% origination (mid-point 2%), auto loans typically minimal at refi ($50-$300 flat or 0.5-1%), mortgages 2-5% all-in (mid-point 3%), student-loan refi usually $0 at the major private lenders. The 'closing costs' on a personal loan are conceptually different — there's no escrow or title work, just an origination fee deducted from disbursement. The buttons on the calculator pre-fill these defaults so you can sanity-check a quote against the typical range.
Should I roll closing costs into the new loan or pay out of pocket?
Out of pocket if you have the cash. Rolling closing into the loan means you're financing them at the new APR for the full new term — a $5,000 closing rolled into a 30-year mortgage at 6% costs roughly $11,000 in total interest. Paying out of pocket avoids that. The honest exception: if you'd otherwise have to liquidate retirement assets or drain your emergency fund, the math reverses — taxes, penalties, or the cost of being uninsured for emergencies easily exceed the financed-closing interest cost. If you do roll closing in, reduce the 'balance owed' input on this calculator by that amount and zero out closing costs to get the right break-even.
I'm getting a 'no closing cost' refi quote. Is that actually free?
No. The lender either charges a higher rate (above-par pricing) or rolls the costs into the new principal balance silently. Both move the costs somewhere you don't see them on the statement. Ask the loan officer for the par-rate quote (zero lender credit, zero closing) and compare both. Run that pair through this calculator. If the 'no closing cost' rate is more than ~0.25% above par, you're paying for the closing costs — just slowly, over decades, instead of at signing.
When does a refi NOT work regardless of the math?
Two situations. First, if you're going to sell the home (or pay off the loan) before the break-even month — the math says yes-but-you-won't-stay-long-enough. Second, if the rate cut is small (under ~0.5%) and your remaining balance is small (under $100K). Even with favorable closing costs, the absolute dollar savings on a $50K balance with a 0.4% rate cut are usually a few hundred bucks per year — not worth the application paperwork and credit pull. Run the numbers and pay attention to the break-even months — if it's longer than you'll be in the loan, walk away.
Related
- Refinance vs. prepay (guide) →
- Refinance vs. purchase (guide) →
- Invest vs. prepay calculator →
- Single-number refinance calculator →
Written by James L. Wu. The math is simple amortization on both sides; the differentiator is naming the four verdict outcomes explicitly so the term-extension trap can't hide behind a single “you save $X/month” headline.