Is refinancing worth it
A new loan almost always has a lower payment, because the term starts over. This works out whether it actually costs you less — counting the closing costs, the balance you still owe, and how long you plan to stay.
Refinancing saves $9,617 over 10 years.
It pays for itself in month 46 (3 years and 10 months).
| Keep it | Refinance | |
|---|---|---|
| Monthly payment | $2,418.52 | $2,339.95 |
| Balance to start | $320,000 | $326,000 |
| Cost over your horizon | $202,980 | $193,363 |
To pay for itself within five years, the rate would need to be at or below 6.70%.
Cost over the horizon counts everything paid plus the balance still owed, minus what is owed today — so a longer term stops looking free.
The trap in every refinance quote
A refinance quote leads with the new payment, and the new payment is almost always lower. That is not evidence of anything: if you are twenty-two years into a thirty-year loan and take out a fresh thirty-year loan, the payment falls because you just gave yourself eight more years to pay, not because the loan got cheaper.
Compare payments and you will refinance into a worse deal that feels better every month. That is why this page compares money out over the years you will actually stay, counting the balance still owed at the end. Stretch the term and that balance grows, so the trick stops working.
Where the closing costs go
Most refinances roll the costs into the new balance rather than asking for a cheque. That is convenient and it is not free — you borrow them, and you pay interest on them for as long as the loan runs.
This calculator counts rolled-in costs as a real cost, because the debt you owe afterwards is genuinely higher. A quote that shows “no cost to you” has usually moved the cost, not removed it.
When it is worth it
The honest test has three parts, and all three have to hold:
- The rate is materially lower. A quarter point rarely covers closing costs.
- You will stay past break-even. The figure above says which month that is. If you are likely to move first, the saving never arrives.
- The term does not stretch. Refinancing into the remaining term keeps the comparison honest. If the shorter term makes the payment uncomfortable, that is useful information about the loan you are being offered.
The one case that breaks these rules is escaping FHA mortgage insurance. There the saving comes from dropping the premium rather than the rate, and it can be worth refinancing even at a similar rate — the numbers are here.
Cash-out is a different question
Taking cash out raises the balance and the interest, but you receive the money, so it is not a cost in the same sense. This page treats it that way: cash out is excluded from the comparison, and what you see is the cost of the borrowing itself.
Whether that borrowing is worth doing depends on what the cash is for, which is not something a calculator can weigh.