Should you refinance your mortgage? See the honest answer.

A lower rate is not the same as a better loan.

The most common refinance mistake is treating the rate drop as the whole story. The math has three moving parts — monthly savings, break-even month, and time horizon — and ignoring any of the three produces the wrong answer.

Imagine a $340,000 balance at 7.25% with 26 years remaining. A 5.875% refi offer arrives. Monthly P&I drops by roughly $295. That sounds great. But the closing costs are $6,500. Break-even is month 22 — almost two years before refinancing starts saving net money. If your real plan is to be in the home another seven years, the savings are real and significant. If you're realistically thinking about selling within three, the closing costs eat most or all of the gain.

This calculator runs all three numbers together. It does not assume you'll stay 30 years. It uses your stated hold period to compute net savings honestly — including the closing costs you'll pay either way.

Why "1% rate drop = refinance" is wrong

The "1% rule" is a relic of a time when refinances cost roughly 1% of the loan amount. Modern closing costs run 2–4% on most loans, and the smaller the remaining balance, the harder it is for the savings to exceed the closing costs. A 1% drop on a $200K balance saves about $120/mo; on a $7,000 closing-cost refi, that's a 58-month break-even. If you're not staying close to five more years, the math doesn't work.

The term-extension question

When the calculator suggests refinancing wins your specific scenario, it's reporting savings over your hold period — not lifetime savings. If you take a partially-paid loan with 22 years remaining and refinance into a fresh 30-year, you've added eight years of interest payments to the back end. The monthly savings are real for the time you stay; if you don't sell before that loan ends, the lifetime interest can be higher than the loan you replaced. Many borrowers solve this by refinancing into a shorter term (15- or 20-year), which preserves rate savings without resetting the clock — at the cost of a higher monthly payment.

What this calculator doesn't do

It doesn't model cash-out refinancing (where you take additional money out at closing — that's a different decision). It doesn't model rate buydowns or temporary 2-1 buydown programs (the savings curve is non-linear). It doesn't model points paid at closing to reduce the rate further — assume any points are folded into the closing-cost figure you enter. And it isn't predictive about future rates: if rates drop further next year, you might refinance again, but it's better to make today's decision on today's numbers than to wait indefinitely.