How mortgage refinance savings are calculated

What a refinance comparison is estimating

A refinance comparison asks a narrow question: if you keep your current fixed-rate loan for its remaining term versus start a new fixed-rate loan at the balance you enter, how do estimated monthly payments and remaining interest differ under those assumptions?

It is not a lender quote, an approval decision, or a complete economic analysis of whether refinancing is worthwhile for you.

Try the numbers in the mortgage refinance calculator. For simplified equity and borrowing-capacity estimates, see the HELOC / home equity calculator.

How payments are calculated

Both the current loan and the new loan use standard monthly amortization for a fixed rate.

With a positive monthly rate r (annual percent ÷ 100 ÷ 12) and n months:

M = P × r × (1 + r)^n / ((1 + r)^n − 1)

where P is principal. If the rate is 0%, payment is simply principal ÷ months.

Remaining interest is summed from the amortization schedule for that path — not invented from a rule of thumb.

What “savings” usually means in this model

Common outputs include:

• Current vs new estimated monthly payment
• Monthly payment difference
• Estimated remaining interest on each path
• Closing costs you enter
• A simple payment break-even when monthly payment savings are positive

Payment break-even months = closing costs ÷ monthly payment savings when savings are greater than zero. If the new payment is not lower, break-even is not applicable in this model.

Assumptions

• Fixed-rate, fully amortizing loans with monthly payments
• Taxes, insurance, HOA, PMI, discount points, and prepayment penalties are excluded unless you fold them into closing costs yourself
• Closing costs are treated as paid out of pocket (not automatically added to the new principal)
• No cash-out beyond replacing the stated current balance
• Interest difference is not the same thing as total economic savings

Limitations

• Does not quote lender rates, fees, or approval odds
• Does not model ARM resets or escrow changes unless you encode them in your inputs
• Estimated payment savings are not guaranteed

Takeaways

Refinance “savings” in this educational model are differences between two amortization paths under inputs you control. Compare payments, interest, and break-even carefully — and read each calculator page’s methodology before treating any figure as decision-ready.