Mortgage Refinance Calculator 2026 – Should You Refinance Your Home Loan?
Calculate if refinancing your mortgage saves money. Compare interest rates, closing costs, break-even point, and monthly payment savings. Find the best refi strategy.
Mortgage Refinance Calculator 2026 – Should You Refinance Your Home Loan?
Introduction
Mortgage rates dropped from 7.5% to 6.2% last month. Your neighbor just refinanced and is saving $400/month. Your coworker won't shut up about their new 5.8% rate.
Should you refinance too?
Maybe. Or maybe you'd be throwing away $5,000 in closing costs to save $150/month. That's a 33-month break-even. If you're planning to move in 2 years, you just lost money.
The Mortgage Refinance Calculator tells you exactly whether refinancing makes sense for your situation. It factors in your current rate, new rate, closing costs, how long you'll stay in the house, and whether you're doing a cash-out refi or rate-and-term.
Because refinancing isn't free. And sometimes the math just doesn't work.
What Is Mortgage Refinancing?
Refinancing means replacing your current mortgage with a new one. You're essentially paying off the old loan with a new loan, hopefully at better terms.
There are three main types:
Rate-and-term refinance: Lower your interest rate or change your loan term (30-year to 15-year, for example). Your loan balance stays roughly the same.
Cash-out refinance: Borrow more than you owe and pocket the difference. If you owe $200,000 and your home is worth $350,000, you could refinance for $250,000 and get $50,000 cash (minus closing costs).
Cash-in refinance: Pay down your loan balance to get a better rate or eliminate PMI. Less common, but useful in specific situations.
Most people do rate-and-term refis to lower their monthly payment or pay off the loan faster.
When Does Refinancing Make Sense?
Rates Dropped Significantly
The old rule was "refinance if rates drop 1-2%." That's outdated. With today's lower closing costs, even a 0.5% drop can make sense if you're staying in the house long enough.
Example: You have a $300,000 loan at 7% with 25 years left. Refinancing to 6% saves you $195/month. If closing costs are $4,000, you break even in 20 months. After that, it's pure savings.
You Want to Switch Loan Types
Going from an adjustable-rate mortgage (ARM) to a fixed rate? That's a refinance. Your ARM is about to adjust from 5% to 8%? Definitely refinance to lock in a fixed rate.
Or maybe you want to go from 30-year to 15-year to pay off your house faster and save on interest.
You Need Cash for Something Important
Home equity is sitting there doing nothing. A cash-out refi at 6.5% beats a personal loan at 12% or a HELOC at 9%. Just don't use it for a vacation or a new car. That's how people lose their houses.
Your Credit Score Improved
When you got your mortgage 3 years ago, your credit score was 680. Now it's 760. You might qualify for a rate 0.75-1% lower just from better credit.
You Want to Remove PMI
If you put down less than 20%, you're paying private mortgage insurance. Once you have 20% equity (through payments or home appreciation), you can refinance to eliminate PMI. That's $100-$300/month back in your pocket.
The Math: Break-Even Analysis
The key question: how long until the monthly savings cover the closing costs?
Formula: Break-Even Months = Closing Costs ÷ Monthly Savings
Let's run some real numbers.
Scenario: $400,000 loan, 28 years remaining
Current rate: 7.0% New rate: 6.0% Closing costs: $6,000
Current monthly payment: $2,661 New monthly payment: $2,398 Monthly savings: $263
Break-even: $6,000 ÷ $263 = 23 months
If you're staying in the house for at least 2 years, refinance. If you're moving in 18 months, don't.
But that's just the simple version. The real calculation includes:
- How much interest you save over the life of the loan
- Tax implications (mortgage interest deduction)
- Opportunity cost of the closing costs
- Whether you're resetting your loan term
Current Mortgage Rates (2026)
Rates change daily, but here's where things stand in early 2026:
30-Year Fixed:
- Excellent credit (760+): 6.0-6.5%
- Good credit (700-759): 6.5-7.0%
- Fair credit (660-699): 7.0-7.5%
15-Year Fixed:
- Excellent credit: 5.5-6.0%
- Good credit: 6.0-6.5%
- Fair credit: 6.5-7.0%
5/1 ARM:
- Excellent credit: 5.75-6.25%
- Good credit: 6.25-6.75%
These are ballpark figures. Your actual rate depends on your credit score, loan-to-value ratio, debt-to-income ratio, and whether you're buying points.
Closing Costs: What You'll Actually Pay
Refinancing isn't free. Expect to pay 2-5% of the loan amount in closing costs.
On a $300,000 loan, that's $6,000-$15,000. Here's where it goes:
Lender fees:
- Origination fee: 0.5-1% of loan ($1,500-$3,000)
- Application fee: $300-$500
- Underwriting fee: $400-$800
- Processing fee: $300-$500
Third-party fees:
- Appraisal: $400-$600
- Title search and insurance: $1,000-$2,000
- Credit report: $25-$50
- Flood certification: $15-$25
- Recording fees: $100-$250
Prepaid items:
- Homeowners insurance: 1 year upfront
- Property taxes: 2-6 months
- Prepaid interest: Depends on closing date
Some lenders offer "no-closing-cost" refis. They're not actually free—the lender either charges a higher interest rate or rolls the costs into your loan balance. You're still paying, just differently.
Refinance Strategies
Strategy 1: Lower Rate, Same Term
Keep your 30-year loan, just get a better rate. This lowers your monthly payment but doesn't change your payoff date much.
Best for: People who want lower payments and plan to stay in the house long-term.
Strategy 2: Lower Rate, Shorter Term
Refinance from 30-year to 15-year. Your monthly payment might stay the same (or even drop if rates fell enough), but you'll pay off the house in half the time and save massive amounts of interest.
Example: $300,000 at 7% for 30 years = $418,000 in interest $300,000 at 5.5% for 15 years = $127,000 in interest
You save $291,000. That's a new car every year for 10 years.
Best for: People in their 40s-50s who want to own their home outright before retirement.
Strategy 3: Cash-Out Refi for Debt Consolidation
You have $50,000 in credit card debt at 22% APR. Your house has $150,000 in equity. Do a cash-out refi, pay off the cards, and now that debt costs 6.5% instead of 22%.
Monthly payment on $50,000 at 22%: $1,100 Monthly payment on $50,000 at 6.5% (as part of mortgage): $316
You save $784/month. Just don't run up the credit cards again, or you'll be in worse shape.
Best for: People with high-interest debt and discipline not to repeat the mistake.
Strategy 4: Remove PMI
You bought a house 3 years ago with 5% down. You're paying $200/month in PMI. The house appreciated 20%, so you now have 25% equity. Refinance to eliminate PMI.
Even if your rate stays the same, you save $200/month. That's $2,400/year. If closing costs are $5,000, you break even in 25 months.
Best for: Anyone paying PMI with at least 20% equity.
Strategy 5: ARM to Fixed Conversion
Your 5/1 ARM is about to adjust. It's been at 5% for 5 years, but now it's jumping to 7.5%. Refinance to a 30-year fixed at 6.5%.
Your payment goes up a bit, but it's locked in. No more surprises.
Best for: Anyone with an ARM that's about to adjust upward.
How to Use the Calculator
You'll need these numbers:
Current Loan:
- Current balance
- Current interest rate
- Years remaining
- Current monthly payment
New Loan:
- New interest rate (get quotes from 3-5 lenders)
- New loan term (15, 20, or 30 years)
- Estimated closing costs
- Points you're considering buying (if any)
Your Plans:
- How long you plan to stay in the house
- Whether you're doing cash-out or rate-and-term
- Your tax bracket (for interest deduction calculations)
The calculator shows:
- New monthly payment
- Monthly savings
- Break-even point in months
- Total interest saved over loan life
- Net benefit after closing costs
Real-World Scenarios
Scenario 1: Clear Winner
Profile: $350,000 loan, 7.5% rate, 27 years left, staying in house 10+ years
Current payment: $2,449/month New rate: 6.0% New payment: $2,098/month Monthly savings: $351 Closing costs: $7,000
Break-even: 20 months 10-year savings: $42,120 - $7,000 = $35,120 net benefit
Decision: Refinance immediately.
Scenario 2: Borderline Case
Profile: $200,000 loan, 6.5% rate, 22 years left, might move in 3-4 years
Current payment: $1,266/month New rate: 5.75% New payment: $1,167/month Monthly savings: $99 Closing costs: $4,500
Break-even: 45 months (3.75 years)
Decision: Only refinance if you're confident you'll stay at least 4 years. Otherwise, skip it.
Scenario 3: Don't Do It
Profile: $150,000 loan, 6.0% rate, 8 years left, planning to sell in 2 years
Current payment: $899/month New rate: 5.5% New payment: $1,207/month (if refinancing to 30 years) Closing costs: $3,500
Wait—the payment went UP? That's because you're resetting to a 30-year loan. You'd be paying for 30 more years instead of 8.
If you refinance to another 8-year loan, the payment drops to $865 (saving $34/month). But with $3,500 in closing costs, you'd need 103 months to break even. You're moving in 24 months.
Decision: Don't refinance. You'd lose money.
Common Refinance Mistakes
Resetting the Clock Without Realizing It
You've been paying your 30-year mortgage for 10 years. You refinance to a new 30-year loan. Congratulations, you just added 10 years of payments.
If you're 10 years into a 30-year loan, refinance to a 20-year loan (or shorter) to keep your payoff date the same.
Ignoring Closing Costs
"I'm saving $200/month!" Great. You paid $8,000 in closing costs. That's 40 months of savings just to break even. If you move before then, you lost money.
Always calculate the break-even point.
Cash-Out Refi for Stupid Reasons
Taking $50,000 out of your house to buy a boat is financial suicide. You're turning unsecured debt (which you could walk away from in bankruptcy) into secured debt (they can take your house).
Cash-out refis are for:
- Paying off high-interest debt
- Home improvements that increase value
- Starting a business (maybe)
- Emergency medical expenses
Not for:
- Vacations
- Cars
- Toys
- "Lifestyle"
Not Shopping Around
The first lender quotes you 6.5%. You take it. The second lender would have offered 6.0%. On a $300,000 loan, that's $95/month or $34,000 over 30 years.
Get quotes from at least 3 lenders. They'll all pull your credit within 45 days, and it only counts as one inquiry.
Paying Points When You Shouldn't
Lenders offer to lower your rate if you pay "points" upfront. One point = 1% of the loan amount.
Example: $300,000 loan, pay $3,000 to lower your rate from 6.5% to 6.25%.
Is it worth it? Depends on how long you're staying. If you're moving in 3 years, probably not. If you're staying 10+ years, maybe.
Run the numbers. Don't just assume points are a good deal.
Tax Implications
Mortgage interest is tax-deductible, but only if you itemize. With the standard deduction at $14,600 (single) or $29,200 (married) in 2026, most people don't itemize anymore.
If you do itemize, refinancing affects your taxes:
Lower interest rate = lower deduction. If you're in the 24% bracket and your interest drops from $20,000/year to $15,000/year, you lose $1,200 in tax savings. Factor that into your break-even calculation.
Cash-out refi interest is only deductible if used for home improvements. Use it to pay off credit cards? Not deductible. Use it to remodel your kitchen? Deductible.
Closing costs aren't immediately deductible. You have to amortize them over the life of the loan. So $6,000 in closing costs on a 30-year loan = $200/year deduction. Not exactly life-changing.
When NOT to Refinance
You're Moving Soon
If you're selling within 2-3 years, the closing costs probably won't pay for themselves. Run the break-even calculation. If it's longer than your timeline, don't refinance.
Your Credit Score Dropped
You got your current mortgage with a 750 credit score. Now you're at 650 because of some late payments. Refinancing will give you a HIGHER rate. Wait until your score recovers.
You're Close to Paying Off the Loan
You have 5 years left on your mortgage. Refinancing to a new 30-year loan is insane. Even refinancing to a new 5-year loan might not be worth the closing costs.
Do the math, but usually, you're better off just finishing the current loan.
Rates Haven't Dropped Enough
If rates only dropped 0.25%, the savings probably don't justify the hassle and costs. You need at least 0.5% (and preferably 0.75%+) to make it worthwhile.
You're Underwater
You owe $250,000, but your house is only worth $220,000. Most lenders won't refinance unless you have at least 20% equity. You'd need to bring $80,000 to closing to get there.
There are some government programs (HARP, FHA Streamline) for underwater borrowers, but they have strict requirements.
FAQ
How long does refinancing take?
30-45 days on average. Could be faster if you have all your documents ready and the appraisal comes back quickly. Could be slower if there are title issues or the lender is backed up.
Do I need an appraisal?
Usually, yes. The lender needs to know your home's current value to calculate your loan-to-value ratio. Appraisals cost $400-$600.
Some lenders offer "appraisal waivers" if you have a lot of equity and good credit. But don't count on it.
Can I refinance if I'm self-employed?
Yes, but it's harder. You'll need 2 years of tax returns, profit and loss statements, and possibly bank statements. Lenders are pickier about self-employed income because it's less predictable.
What's a "no-closing-cost" refinance?
The lender either charges you a higher interest rate (usually 0.25-0.5% higher) or rolls the closing costs into your loan balance. You're not avoiding the costs—you're just paying them differently.
This can make sense if you're not staying in the house long enough to recoup traditional closing costs.
Should I refinance with my current lender?
Maybe. They might offer you a better deal to keep your business. Or they might assume you won't shop around and give you a mediocre rate.
Always get quotes from at least 2-3 other lenders for comparison.
Can I refinance an FHA loan to a conventional loan?
Yes, and you should if you can. FHA loans have mortgage insurance for the life of the loan. Conventional loans let you drop PMI once you hit 20% equity.
If your credit score is 620+ and you have 20% equity, refinance to conventional and ditch that insurance payment.
What if rates drop right after I refinance?
You can refinance again, but you'll pay closing costs again. Most people wait at least a year before refinancing a second time.
Some lenders offer "float-down" options where you can lock in a lower rate if rates drop before closing. Ask about it.
Conclusion
Refinancing can save you tens of thousands of dollars. Or it can cost you money if you do it wrong.
The key is the break-even calculation. If you're staying in the house longer than the break-even period, refinance. If not, don't.
And don't just look at the monthly payment. Look at the total cost over the life of the loan, the closing costs, and your actual timeline.
Action steps:
- Check current mortgage rates (Bankrate, NerdWallet, or call lenders)
- Get quotes from 3-5 lenders
- Use this calculator to compare scenarios
- Calculate your break-even point
- If it makes sense, lock in your rate and start the process
Rates change daily. If you're on the fence, get quotes now. You can always decide not to proceed. But if rates jump 0.5% while you're thinking about it, you'll kick yourself.