Why use this calculator
Refinancing is sold on the monthly repayment, which is the one number almost guaranteed to improve and the one least worth looking at. Dropping a rate while resetting the clock back to thirty years lowers the payment and can still cost tens of thousands more in total interest, because you have added years of payments to the back of the loan.
The two questions that actually matter are how long it takes for the monthly saving to repay the switching costs, and what the change does to lifetime interest. This calculator answers both, and shows the option lenders rarely volunteer: refinance to the lower rate but keep paying the old repayment, which captures the full benefit of the rate without extending the loan at all.
How to use it
- Take the current balance from the payout figure on your latest statement rather than the original loan amount, and enter your actual current rate including any discount already applied.
- Enter how many years are left to run, which is not the original thirty-year term unless the loan is brand new.
- Then enter the rate being offered and the term the new lender is proposing, which is usually a fresh thirty years unless you ask otherwise.
- Add up the discharge fee, application fee, valuation and any government registration charges as switching costs, subtract any cashback by entering it separately, and note any change in ongoing annual package fees.
What each result means
- Break-even point
- How long the monthly saving takes to repay the switching costs. If you might sell or refinance again before this, the move loses money.
- Monthly saving
- The reduction in your repayment after allowing for any change in ongoing fees. It is real cash flow, but it is not the same as a saving overall.
- Current repayment
- What you pay now on the remaining term. Compare it against the new figure, but never decide on this comparison alone.
- New repayment
- What you would pay on the new loan. A longer term flatters this number without improving your position.
- Net upfront cost
- What switching actually costs once cashback is deducted. This is the amount the monthly saving has to repay before you are ahead.
- Lifetime interest difference
- The figure that decides whether refinancing is genuinely worthwhile. A negative result means the lower rate costs you more because the term was extended.
- Total interest, staying put
- Interest remaining on your current loan if you leave it alone and let it run to term.
- Total interest, refinancing
- Interest on the new loan over its full term. Compare directly with the figure above rather than comparing repayments.
- If you keep the old repayment
- Refinance to the lower rate but keep paying what you pay now. This captures the whole rate benefit and shortens the loan instead of extending it.
The formula
Monthly repayment on each loan uses the standard amortisation formula, where payment equals principal multiplied by (monthly rate multiplied by (1 plus monthly rate) to the power of the number of months) divided by ((1 plus monthly rate) to the power of the number of months, minus 1).
Monthly saving = current repayment minus new repayment, minus any increase in annual fees divided by twelve
Net upfront cost = switching costs minus cashback
Break-even in months = net upfront cost divided by the monthly saving
Total interest on each loan = repayment multiplied by the number of months, minus the balance
How this number is used in practice
The term reset is where most of the value leaks away. A borrower twenty-four years into a loan who refinances to a fresh thirty-year term has added six years of payments, and on a typical balance those six years can cost more in extra interest than the lower rate saves.
Lenders default to thirty years because it produces the most attractive repayment figure, but almost all will write the loan to match your remaining term if you ask. Asking costs nothing and is usually worth more than another ten basis points off the rate.
Better still, refinance to the lower rate and set the direct debit to your old repayment. The difference goes entirely to principal, the loan clears years early, and you never notice a change in your budget because nothing changed in your budget. The final row of this calculation shows what that is worth, and on most realistic refinances it is several times the headline saving.
If your lender allows an offset account, parking the difference there achieves much the same result while keeping the money accessible.
Cashback offers deserve scepticism proportional to their size. A large cashback often accompanies a rate that reverts sharply after an introductory period, or an annual package fee that quietly exceeds the cashback over a few years. Model the rate you will actually be paying in year three, not the honeymoon rate, and include the fee change.
Refinancing repeatedly to chase cashback can work, but only if you are disciplined enough to move again the moment the rate reverts, and most people are not.
Worked examples
A $450,000 balance at 6.35% with 24 years left, refinancing to 5.69% over a fresh 30 years for $1,200
Break-even in 2.7 months, but the fresh 30-year term adds $61,437 of lifetime interest despite the lower rate
The same refinance matched to the 24 years remaining instead of resetting to 30
A smaller $179.72 monthly saving, but $51,760 of lifetime interest saved because no years are added
A marginal 0.15% rate drop with $2,500 of switching costs and no cashback
Break-even stretches to 60.5 months, so it only pays if you are certain to stay five years
When people use it
- Deciding whether a rate offered by another lender is worth the switching costs
- Testing whether a cashback offer actually leaves you better off
- Comparing keeping the current repayment against taking the lower one
- Working out the minimum rate drop worth switching for at your balance
- Checking whether resetting to a 30-year term undoes the benefit of a lower rate
Tips
- Ask for the new loan to match your remaining term, not a fresh 30 years. Lenders default to 30 because it looks better.
- The strongest move is to refinance to the lower rate and keep paying your current repayment. The difference goes straight to principal.
- Call your existing lender first and ask them to match. Retention teams frequently do, and it costs nothing and takes an hour.
- Model the reverting rate, not the honeymoon rate. A two-year discount followed by a high standard rate is common.
- Check for fixed-rate break costs before doing anything. They can run to thousands and are not in the advertised switching costs.
- If your balance is above 80 per cent of the property value, check whether refinancing triggers mortgage insurance again.
What it assumes, and where it stops being accurate
- Assumes a standard amortising principal-and-interest loan with a fixed rate for the full term. Variable rates will move and introductory rates revert.
- Assumes switching costs are paid up front rather than capitalised into the new loan. Capitalising them adds interest and lengthens the break-even.
- Ignores lenders mortgage insurance, which can be triggered again if the loan exceeds 80 per cent of the property value.
- Ignores the opportunity cost of the upfront fees and any tax treatment, which matters for investment loans.
- Assumes no break costs. Exiting a fixed-rate loan early can incur a substantial economic cost that dwarfs the switching fees.
- Assumes you keep the loan for its full term. Most borrowers refinance or sell well before that, which is exactly why the break-even matters.
Terms used on this page
- Break-even point
- The number of months of savings needed to recover the upfront cost of refinancing.
- Discharge fee
- A charge from your existing lender for closing the loan and releasing the mortgage.
- Comparison rate
- A rate incorporating most fees, designed to make loans with different fee structures comparable.
- Break cost
- An economic cost charged for exiting a fixed-rate loan before its term ends.
- Term reset
- Restarting the loan term at refinance, which lowers repayments and raises total interest.
Questions people ask
- How much of a rate drop makes refinancing worthwhile?
- There is no universal threshold, because it depends on your balance and the switching costs. On a large balance even 0.25 per cent can break even within months, while on a small balance a full percentage point may not. Run your own numbers rather than relying on a rule of thumb.
- Why does a lower rate sometimes cost more in total?
- Because refinancing usually resets the term. Moving from 24 years remaining to a fresh 30 adds six years of payments, and that extra interest can exceed everything the lower rate saves. Match the new term to the time remaining to avoid it.
- Should I take the cashback offer?
- Only after checking what happens when the introductory rate reverts and what the ongoing annual fee is. A large cashback paired with a rate that jumps after two years and a package fee can cost more than it pays within three or four years.
- What are the switching costs?
- Typically a discharge fee from the outgoing lender, an application or establishment fee from the new one, a property valuation, and government registration and mortgage transfer charges. Together these commonly run from several hundred to a few thousand depending on the jurisdiction.
- Can I just ask my current lender for a better rate?
- Yes, and it is the first thing to try. Retention teams routinely match or nearly match competitor offers because keeping a loan is far cheaper than winning a new one. A single phone call quoting a rival's rate often achieves most of the benefit with none of the cost.
- What if I might sell within a few years?
- Then the break-even point is the whole decision. If you expect to sell before the switching costs are recovered, refinancing loses money regardless of how attractive the rate looks. Compare your realistic time horizon against the break-even figure directly.
Use this with
Refinance Break-Even Calculator answers one part of the question. These pick up where it stops: Mortgage Calculator, Mortgage Offset Calculator, Loan Repayment Calculator and Home Affordability Calculator.
Where these figures come from
This calculation is jurisdiction-neutral arithmetic. No country-specific rules are applied.
- MoneySmart: Home loans. Australian guidance on switching loans, fees and comparison rates
- Consumer Financial Protection Bureau: Mortgages. US guidance on refinancing costs and closing disclosures
- MoneyHelper: Remortgaging. UK guidance on remortgaging, early repayment charges and fees
Refinance Break-Even Calculator produces an estimate for general information. It is not financial, tax, medical, legal or engineering advice. read the full disclaimer. Spotted a wrong number? Report it and it gets fixed. The form picks up this calculator and the inputs you used.