Mortgage Refinance Calculator

Mortgage refinancing to a lower rate cuts the monthly payment immediately. A 200,000 balance at 6% against 4% over 20 years drops the payment by about 221 a month (1,433 against 1,212), which adds up to roughly 53,000 less interest over the remaining term. Whether the switch pays depends on the fees against that monthly figure.

A worked example

A smaller balance and fewer remaining months each cut the saving. On 100,000 over 10 remaining years at the same rates, the monthly saving is 97.75, under half the headline case.

What moves the number most

The rate gap drives the saving; the balance and term scale it. Each extra percentage point of gap at the sample figures adds roughly 95 to 115 a month, tapering as the gap widens. The balance scales the saving one-for-one, and a shorter remaining term shrinks it: the same two-point gap over 10 years saves 195.51 against 220.90 over 20, because fewer months remain for the difference to act on.

The formula behind this

Standard amortisation. Monthly payment M = P × (r(1+r)^n) / ((1+r)^n − 1), where r is the annual rate as a percentage divided by 1,200 and n is the remaining years times 12. The saving is M at the current rate minus M at the new rate. Because both payments repay the same balance over the same months, the payment difference and the interest difference are the same number.

Why this matters

The monthly figure exists to feed one test: fees divided by monthly saving equals months to break even. At the sample figures, 1,500 of fees is recovered in about 7 months, and a saving half the size would take twice as long.

Where the monthly saving comes from

The saving is the rate difference applied to the remaining balance for the remaining months. Nothing else enters: the same balance amortised at two rates produces two level payments, and the gap between them is the saving.

The costs that decide the break-even

The monthly saving is not the whole comparison. Arrangement or origination fees, valuation and legal costs, and any prepayment or early-repayment charge on the existing loan are paid up front and are not in this figure; dividing them by the monthly saving gives the number of months before the change breaks even. Extending the term at a lower rate can also lower the payment while raising total interest, so a saving on the monthly figure does not by itself mean less is paid overall.