The Complete Guide to Refinancing a Mortgage
By Arshi Khan, Founder of Just4Marketing · Last reviewed October 2026
Refinancing replaces your current mortgage with a new one, usually to get a lower rate, a lower payment or a shorter term. It isn't free: closing costs mean a refinance only pays off if you keep the new loan long enough. This guide explains how to compare the two loans, how the break-even point works, and why a lower monthly payment doesn't always mean you save money.
How the comparison works
The calculator works out the principal and interest payment on what you owe now, over the years you have left at your current rate. It then works out the payment on the new loan — the same balance, plus closing costs if you add them to the loan — at the new rate and term.
Monthly savings are the difference between the two payments. Lifetime savings compare everything you'd still pay on the current loan with everything you'd pay on the new one, including closing costs paid upfront.
A worked example
You owe $300,000 with 27 years left at 7.25%. A lender offers 6.25%, with $6,000 of closing costs paid upfront.
| New term | New payment | Monthly change | Break-even | Lifetime savings |
|---|---|---|---|---|
| Keep current loan | $2,112.58 | — | — | — |
| 30 years | $1,847.15 | −$265.43 | 23 months | About $13,500 |
| 27 years (same end date) | $1,919.05 | −$193.54 | 32 months | About $56,700 |
| 20 years | $2,192.78 | +$80.20 | — | About $152,200 |
The 30-year option gives the lowest payment but saves the least overall, because it adds three years of payments. Matching the time you have left saves more than four times as much, and a 20-year loan saves the most while costing a little more each month.
Things to check before you refinance
How long you'll stay
If you might sell or refinance again before the break-even point, the closing costs won't be recovered.
The full closing cost
Ask for a Loan Estimate and include appraisal, title, origination and any points — not just the rate.
Taxes and insurance
Escrow amounts usually stay the same when you refinance, so this calculator compares principal and interest only.
Prepayment penalties
Check whether your current loan charges a fee for paying it off early. Most don't, but some do.
Frequently asked questions
How do I know if refinancing is worth it?
Compare the monthly savings with the closing costs. Divide the closing costs by the monthly savings to get the break-even point in months. If you expect to keep the home and the loan longer than that, refinancing usually pays off. Also compare total interest, because a longer new term can cost more overall.
What is the break-even point on a refinance?
It's the number of months it takes for your monthly savings to add up to what you paid to refinance. With $6,000 of closing costs and $265 a month of savings, the break-even point is 23 months.
How much lower does my rate need to be to refinance?
There's no fixed rule. The old advice of 'at least 1 percentage point' is a rough guide only: a smaller drop can still pay off on a large balance with low closing costs, while a bigger drop may not if you plan to move soon. The break-even point is a better test.
Should I add closing costs to the new loan?
Adding them to the loan avoids paying cash now, but you borrow more and pay interest on the costs for the life of the loan. Paying upfront gives a lower payment and lower lifetime cost if you have the cash.
Does refinancing restart my mortgage?
Yes. If you're 3 years into a 30-year loan and refinance into a new 30-year loan, you'll be paying for 33 years in total. Choosing a term close to the years you have left — or shorter — keeps you on track.