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Break-even point

The number of months it takes for the monthly savings from a refinance to repay its closing costs. In its simplest form it is closing costs divided by monthly savings. If you sell or refinance again before reaching it, the new loan has cost more than it saved, so compare it with how long you expect to keep the home.

Closing costs

The one-time fees charged to originate the new loan, such as lender fees, appraisal, title insurance and recording charges. You can enter them in dollars or as a percentage of the new loan. Paying them at closing keeps the loan smaller; rolling them into the balance avoids cash out of pocket but adds interest over the life of the loan.

Interest rate

The annual percentage the lender charges on the outstanding balance, used here to compute the monthly principal and interest payment. The calculator compares your current rate on the remaining balance with the new rate on the new loan. A lower rate reduces the payment and total interest, but restarting a long term can offset part of that gain.

Loan term

The number of years over which a loan is scheduled to be repaid. A refinance starts a new term, so moving from 25 years remaining to a new 30-year loan lowers the payment but can add interest overall. A shorter new term raises the monthly payment and cuts total interest, which the lifetime savings result reflects.

Cash-out refinance

A refinance in which the new loan is larger than your current balance and you receive the difference in cash at closing. Here the cash-out amount is added to your current balance to form the new loan. Lenders commonly cap cash-out loans at 80% loan-to-value, a lender guideline rather than a law, and the extra borrowing raises total interest.

Loan-to-value ratio (LTV)

The loan balance divided by the home’s current value, shown as a percentage. A $320,000 loan on a $400,000 home is 80% LTV. This calculator uses LTV to decide whether PMI applies to the current or the new loan and to show the equity left after any cash out. A lower LTV means more equity in the home.

PMI

Private mortgage insurance protects the lender, not the borrower, on conventional loans with less than 20% equity. Here it is charged at the annual rate you enter whenever LTV exceeds 80% on either loan. Under the Homeowners Protection Act, PMI can be cancelled on request at 80% of the original value and ends automatically at 78%.

Principal and interest (P&I)

The part of the monthly mortgage payment that repays the loan balance (principal) and pays the lender’s charge for borrowing (interest). It excludes property tax, insurance, PMI and HOA dues. The monthly savings in this calculator come mainly from the change in P&I, plus PMI where it applies, because the other costs stay the same after refinancing.

Escrow

An account the loan servicer uses to collect a share of property tax and homeowners insurance with each monthly payment and to pay those bills when they come due. The calculator includes tax and insurance for a complete payment picture, but because they do not change with a refinance, they do not affect monthly savings or break-even.