How this calculator works
A refinance replaces your existing mortgage with a new one. The math below compares your current monthly principal and interest with what your new payment would be under three scenarios:
- Rate/term refi: lower your rate, lower your payment, or shorten the term. Only makes sense if the new rate is lower (or you want a shorter term).
- Debt consolidation: roll high-interest debt (credit cards, personal loans) into the mortgage at a much lower rate.
- Cash-out refi: take equity out of the home as cash for renovations, emergency fund, or investments.
Break-even month is closing costs divided by monthly savings. If it takes 40 months to recoup the closing costs and you might sell in 3 years, the refi doesn't pay off.
Most lenders cap cash-out refinances at 80% loan-to-value. So if your home is worth $500,000 and your current mortgage is $320,000, your available equity is $400,000 (80%) minus $320,000 = $80,000, minus closing costs.
Closing costs are estimated at 2.5% of the new loan amount. Real quotes can range from 2% to 4%.
FAQ
When does refinancing make sense?
General rule: refinance if the new rate is at least 0.75-1.0 percentage points below your current rate, and you plan to stay in the home long enough to break even on closing costs. For a $320K loan, 1% lower rate saves roughly $200/month, so $8,000 in closing costs breaks even at month 40.
Should I use cash-out refi for credit card debt?
It depends. Rolling 22% credit card debt into a 6% mortgage saves a lot of interest. But you're converting unsecured debt (which bankruptcy can discharge) into debt secured by your home (which can lead to foreclosure). And stretching a $20K credit card balance across 30 years costs more total interest even at the lower rate. Only consolidate if you have a plan to not rebuild the credit card balance.
What's PMI vs MIP vs no mortgage insurance?
When refinancing with less than 20% equity (LTV > 80%), conventional refis charge PMI (private mortgage insurance, 0.5-1.5% of loan annually). FHA refis charge MIP (similar but tied to the FHA program). VA refis have no ongoing MI. If your LTV is 80% or better, no monthly mortgage insurance.
What about no-closing-cost refis?
"No-closing-cost" refis usually roll the closing costs into the loan balance or charge a slightly higher rate to cover them. The math still works out similarly; just make sure you understand where the closing costs actually went.
How long does a refinance take?
Typically 30 to 45 days from application to closing. Rate locks usually last 30, 45, or 60 days. You'll need pay stubs, tax returns, bank statements, and a new appraisal (though some lenders offer appraisal waivers on straightforward refis).
Can I refi if my home value dropped?
Harder. If you're underwater (owe more than the home is worth), most refis aren't available. Government programs like FHA Streamline (FHA-to-FHA) and VA IRRRL (VA-to-VA) have options even with low equity. Ask a lender about these specifically.
Should I do a 15-year or 30-year refi?
15-year: lower rate, pay far less total interest, higher monthly payment. 30-year: lower payment, more flexibility, more total interest paid. If you can comfortably afford the 15-year payment, it's mathematically better. If it would stress your cash flow, stay with the 30-year and just make extra principal payments when you can.