Your result
What your result means
Your current principal-and-interest payment is $1,971.74; the new loan would be $1,724.01, saving $247.73 a month ($247.73 after the tax effect you entered). Dividing $6,000 of closing costs by those savings gives a break-even of 25 months. If you expect to stay in the home and keep the loan longer than that, refinancing comes out ahead; over the full terms the interest difference after costs is $12,205.
The math
Formula and sources
Monthly savings = M(current) − M(new) After-tax savings = savings × (1 − tax rate) Break-even months = closing costs ÷ after-tax savings
- M
- principal-and-interest payment, from the standard loan formula
- tax rate
- optional; the Federal Reserve worksheet uses it for borrowers who deduct mortgage interest
Lifetime savings compares the total remaining interest on both loans and subtracts closing costs. Restarting a 30-year term can lower the payment yet raise lifetime interest — check both numbers.
Sources we checked this against
- 1A Consumer's Guide to Mortgage RefinancingsFederal Reserve Board · federalreserve.gov
- 2Loan Estimate sample H-24(B), fixed-rate loanConsumer Financial Protection Bureau · files.consumerfinance.gov
Formula last checked 2026-11-04. Found an error? Tell us and we will fix it.
Step by step
Two worked examples
Federal Reserve worksheet
Monthly savings
$125.46
- Current loan balance
- $200,000
- Current interest rate
- 6%
- Years left on current loan
- 30 years
- New interest rate
- 5%
- New loan term
- 30 years
- Closing costs
- $2,500
- Tax rate (optional)
- 28%
The Fed’s guide compares $1,199 and $1,073 payments ($126 savings), applies a 28% tax rate (about $91) and gets 27 months. Without rounding the payments, our figures are $1,199.10 and $1,073.64, after-tax savings $90.33, break-even 28 months (27.7 months).
Same loan, no tax deduction
Monthly savings
$125.46
- Current loan balance
- $200,000
- Current interest rate
- 6%
- Years left on current loan
- 30 years
- New interest rate
- 5%
- New loan term
- 30 years
- Closing costs
- $2,500
- Tax rate (optional)
- 0%
Most households now take the standard deduction, so the full $125.46 counts. Break-even shortens to 20 months.
| Result | Example 1 | Example 2 |
|---|---|---|
| Monthly savings | $125.46 | $125.46 |
| Savings after tax effect | $90.33 | $125.46 |
| Break-even point | 28 months | 20 months |
Questions
Frequently asked questions
How much does it cost to refinance?
The Federal Reserve’s guide notes that refinancing fees of 3% to 6% of the outstanding principal are not unusual. Your Loan Estimate lists the exact closing costs; enter that total here.
What if I roll closing costs into the loan?
You pay nothing up front but borrow more, so the new payment is a little higher. Add the costs to the balance for the new loan and set closing costs to 0 to model it.
Should I include the tax rate?
Only if you itemize deductions and deduct mortgage interest. Lower interest then also means a smaller deduction, which is why the Fed worksheet reduces savings by your tax rate.
Is a lower payment always a better deal?
No. Stretching the remaining term back to 30 years can lower the payment while increasing total interest. Look at the lifetime figure too.