Should you refinance?
Refinancing replaces your existing loan with a new one — usually to get a lower rate, a different term, or a smaller monthly payment. This tool takes your remaining balance and the new rate and term, works out the new monthly payment using the standard amortization formula, and compares it against what you pay now. The bar chart makes the difference easy to see.
The break-even point
Refinancing isn't free — there are closing or arrangement costs. The break-even point is how many months of savings it takes to recover those costs: refinance costs ÷ monthly saving. If you'll keep the loan well past that point, refinancing tends to pay off; if you might move or repay sooner, it may not.
Watch the term, not just the payment
A lower monthly payment can simply come from stretching the loan over more years, which can raise the total interest even at a lower rate. Compare the new term against your current remaining term, and weigh the monthly saving against how long you'll be paying.
Frequently asked questions
What are refinance costs?
Fees to set up the new loan — appraisal, origination, legal and similar charges. Enter your best estimate so the break-even figure is realistic.
Does a lower payment always save money?
Not always. If the lower payment comes from a longer term, you could pay more interest overall. Check the term alongside the monthly saving.
What does it mean to refinance a loan?
Replacing your current loan with a new one, usually at a lower rate or different term, to reduce the payment or the total interest.
When is refinancing worth it?
When the interest saved outweighs the costs of refinancing, and you keep the loan long enough to recover those costs — the break-even point.
What are the costs of refinancing?
Closing costs, fees and sometimes penalties on the old loan. Compare them against the monthly savings to see how long until you come out ahead.