Start With a Dated Current-Loan Evidence Pack
Collect a recent statement, note, mortgage-insurance notice, and payoff quote. Record principal, fixed contract rate, P&I, payments remaining, insurance, and any payoff charge separately. A payoff figure can include dated interest or fees; total escrow payment is not P&I. Adjustable, interest-only, modified, delinquent, balloon, or other non-level loans require a model that matches their contracts.
- Current principal balance and statement date
- Contract rate and rate type
- Principal-and-interest payment
- Payments or maturity remaining
- Mortgage-insurance amount and terms
- Dated payoff quote and itemized additions
Normalize Competing Offers Before Comparing Prices
Create one worksheet per Loan Estimate and copy its amount, product, term, note rate, lock, P&I, mortgage insurance, points, lender charges, required services, credits, cash to close, APR, and five-year values. Compare offers close in date with matching features. Keep taxes, insurance, government charges, prepaids, and initial escrow visible for cash readiness without automatically treating those amounts as lender-controlled credit cost.
- Do not combine the rate from one offer with another offer's credits.
- Check whether every rate is locked for a comparable period.
- Compare both monthly mortgage insurance and its actual terms.
- Request corrected disclosures when a material input is wrong.
Translate the Offer Into a Net Transaction-Cost Bridge
Convert points to dollars, add other modeled loan costs, subtract credits shown on that offer, and add any confirmed current-loan payoff charge. This net transaction cost is not necessarily cash to close or a legal classification. When credits exceed entered eligible costs, the calculator reports the excess as unused instead of creating imaginary profit; reconcile it with the actual disclosure.
Formula notes
Point cost = base new loan x point percentageApplied lender credit = smaller of entered credit and points plus other entered new-loan costsNet transaction cost = points + other new-loan costs - applied credit + current-loan payoff charge
Separate Opening Cash, New Principal, and Equity
Upfront costs use opening cash; financed costs raise principal, payment, interest, balance, and LTV. Cash out also raises debt but is a borrower cash inflow, so it remains separate. Calculate both LTVs from one supportable property-value assumption while recognizing that the lender or appraiser may use another value. Modeled equity excludes market movement and selling cost and is not proof of realizable value.
Formula notes
Base new loan = current principal + cash receivedNew principal = base new loan + financed net transaction costNew LTV = new principal / entered property valueModeled equity after refinance = entered property value - new principal
Read Cash-Flow and Equity Break-Even Side by Side
Simple break-even divides net cost by positive monthly loan-payment savings, so it ignores principal speed and is unavailable when the new payment is higher. The equity-adjusted ledger also compares cumulative P&I, entered mortgage insurance, remaining balances, upfront cost, and cash received. Inspect values before and after its first nonnegative month; a small modeled crossover is not guaranteed and can move with final costs, payments, insurance, or payoff timing.
Formula notes
Simple break-even = net transaction cost / positive monthly loan-payment savingsNet savings at month n = current path cost and balance - refinance path cost and balance after costs and cash received
Test the Exit Date and the Full Payoff as Different Scenarios
Test the shortest plausible sale, payoff, or next-refinance date, then the most likely and longest periods without changing unrelated offer facts. Save balances, interest, mortgage insurance, and net savings at each exit. Review full payoff separately and name the goal: payment relief, faster payoff, fixed-rate certainty, cash extraction, insurance change, or lower total cost. One offer can serve one goal while failing another.
- Shortest plausible holding period
- Most likely holding period
- Longest plausible holding period
- Current and new modeled payoff dates
- Reserve impact of the required payment
- Balance and cost at the expected exit
Investigate Tax, Insurance, and Product Rules Outside the Model
Entered mortgage insurance stays level in the model; verify premiums, duration, cancellation, termination, and lender-paid terms. Keep escrow, refunds, property tax, homeowners insurance, HOA dues, maintenance, and utilities outside P&I while budgeting them. IRS Publication 936 describes U.S. mortgage-interest and refinance-point rules, but treatment depends on complete facts and current law. Preserve Form 1098 and settlement records and obtain qualified tax help.
Finish With a Closing and Post-Closing Reconciliation
Compare the selected Loan Estimate with the final Closing Disclosure, note, and payoff statement. Investigate every change in amount, rate, points, credits, costs, cash, insurance, features, or schedule and confirm wire instructions through a trusted channel. After closing, verify payoff, lien release, proceeds, escrow refund, first payment, and new account terms. Recalculate with final figures and preserve both estimate and outcome.
- Reconcile Loan Estimate to Closing Disclosure.
- Verify final payoff and lien release.
- Confirm new account setup and first payment.
- Protect and document closing funds.
- Retain tax and settlement records.
- Rebuild the baseline after the transaction closes.
Frequently asked questions
How do I calculate whether refinancing is worth it?
Compare the current and proposed loans through the time you expect to keep the new loan. Include points, comparable loan costs, lender credits, payoff charges, mortgage insurance, cost financing, cash out, remaining balances, and payoff time. No single break-even number answers every refinance goal.
How is refinance break-even calculated?
Simple break-even divides net transaction cost by positive monthly loan-payment savings. This page also finds an equity-adjusted break-even from cumulative payments, entered mortgage insurance, upfront costs, cash received, and both remaining balances.
What closing costs should I enter in a refinance calculator?
Enter comparable new-loan costs such as origination and required third-party loan charges, plus points in their separate field. Keep lender credits separate. Review whether prepaids, escrow deposits, taxes, and insurance belong in transaction cash rather than true borrowing cost.
Should I include discount points when calculating refinance savings?
Yes. One point equals 1% of the base new loan in this model. Enter points with the rate from the same offer, then compare a separate offer without points over the shortest, longest, and most likely holding periods.
How do lender credits affect refinance break-even?
Applied credits reduce the modeled points-and-other-loan-cost subtotal, which can shorten cost recovery. A credit may accompany a higher rate, so use the rate and credit from the same Loan Estimate and compare the resulting payment and holding-period cost.
Is a no-closing-cost refinance really free?
No. CFPB explains that a lender may offset costs through a higher rate and credit or add costs to the loan amount. Both approaches can increase payment, interest, or reduce equity even when less cash is due at closing.
Should refinance costs be paid upfront or rolled into the loan?
Upfront payment uses cash now. Financing preserves cash but raises principal, LTV, payment, interest, and the balance owed at an early exit. Compare both treatments while protecting an appropriate household reserve.
Does a lower mortgage payment mean refinancing saves money?
Not necessarily. A lower payment can result from a lower rate, longer term, financed costs, different mortgage insurance, or a combination. Check balances, net cost at the planned exit, lifetime borrowing cost, and payoff change.
References
These sources support the method or guidance used for Refinance Calculator. Verify time-sensitive rules at the source.
Try the calculator
Open Refinance Calculator, enter your scenario, and compare its supporting rows with this guide's method and checks.