Should you refinance your mortgage? Use this free calculator to compare your current loan against new loan offers. See your monthly savings, upfront costs, and the break-even point to decide if refinancing is the right financial move.
Deciding to refinance your home is one of the most significant financial decisions you can make as a homeowner. Whether you are looking to lower your monthly payments, shorten your loan term, or tap into your home's equity, understanding the mathematics and mechanics behind refinancing is essential. The CalculatorBudy Refinance Calculator is designed to provide you with a clear, unbiased financial picture, helping you determine if a new loan offers genuine value over your current mortgage.
Refinancing is the process of paying off an existing loan and replacing it with a new one. When you refinance a mortgage, your bank or a new lender pays off your old mortgage debt, and you begin making payments on the new loan. The new loan comes with fresh terms, which may include a different interest rate, a new maturity date (loan length), and a potentially different principal balance if you choose to take cash out.
There are several primary reasons why homeowners choose to refinance:
Our tool is split into two distinct sections: your Current Loan Details and the New Loan Proposal. Accurate inputs are the key to getting a precise break-even analysis.
You have two options for entering your current mortgage information:
This information comes from the "Good Faith Estimate" or "Loan Estimate" provided by potential lenders.
The "Break-Even Point" is arguably the most critical metric in refinancing. It answers the question: "How long will it take for my monthly savings to pay for the cost of the refinance?"
Refinancing is rarely free. Closing costs typically range from 2% to 6% of the loan amount. If your closing costs are $4,000 and the refinance saves you $200 per month, your break-even point is 20 months ($4,000 ÷ $200 = 20).
The Golden Rule: If you plan to sell your home or move before you reach the break-even point, refinancing usually results in a net financial loss. If you plan to stay in the home longer than the break-even period, the refinance will likely save you money.
To navigate the mortgage market effectively, you should be familiar with these common terms found in our calculator and on lender documents:
The interest rate is the cost of borrowing money, expressed as a percentage. The APR is a broader measure of the cost of the loan because it includes the interest rate plus points, broker fees, and other credit charges. The APR is usually higher than the interest rate and is a better tool for comparing offers from different lenders.
These are the fees required to finalize your new mortgage. They can be paid out of pocket or, in many cases, "rolled into" the loan balance (financed). Common closing costs include:
If you refinance with less than 20% equity in your home (meaning you owe more than 80% of the home's value), you will likely have to pay PMI. This protects the lender if you default. In some cases, homeowners refinance specifically to remove PMI if their home value has risen enough to give them 20% equity.
This is the standard refinance where the goal is simply to change the interest rate, the loan term, or both, without advancing new money. The principal balance remains roughly the same (unless closing costs are rolled in). This is ideal for lowering monthly payments or paying off the home faster.
A cash-out refinance replaces your current mortgage with a larger loan than what you currently owe. The difference is paid to you in tax-free cash. This is often used for:
Note: Cash-out refinances often have slightly higher interest rates than rate-and-term refinances because they carry higher risk for the lender.
This is the opposite of a cash-out. You bring a lump sum of cash to the closing table to pay down the loan balance. This allows you to refinance into a smaller loan amount, potentially securing a lower interest rate or eliminating PMI requirements.
While refinancing can save money, it is not without risks. It is important to look at the "Lifetime Savings" metric in our calculator, not just the monthly payment.
It might. Mortgage interest is generally tax-deductible if you itemize deductions. If you refinance and lower your interest rate, your tax deduction may decrease. However, the cash savings from the lower rate usually outweigh the loss of the tax deduction. Consult a tax professional for your specific situation.
There is no legal limit to how often you can refinance, but most lenders have a "seasoning" requirement, typically asking that you wait 6 to 12 months between loans. Furthermore, frequent refinancing incurs repeated closing costs, which can negate potential savings.
Requirements vary by lender and loan type. generally, a score of 620 or higher is needed for conventional loans. FHA and VA loans may allow for lower scores, sometimes as low as 580. The higher your score, the lower the interest rate you will be offered.
Historically, the rule of thumb was to refinance only if you could drop your rate by at least 1% to 2%. However, with modern closing costs and larger loan amounts, even a 0.5% or 0.75% reduction can result in significant savings. Use the CalculatorBudy tool to check the specific math for your loan balance.
Final Tip: Always shop around. Get Loan Estimates from at least three different lenders. Rates, points, and origination fees can vary widely, and comparing them is the best way to ensure you maximize your savings.