How this calculator works
Refinancing replaces the remaining balance with a new mortgage at a new rate and term. The comparison holds the balance constant, so any change comes from the rate, the term and the closing costs. Lowering the rate saves money, but stretching the term lowers the payment while adding interest, so the two effects can pull in opposite directions. The break-even figure divides the closing costs by the monthly saving to show how many months are needed to recover them. If there is no monthly saving because the term changed, the break-even is reported as zero and the lifetime saving tells the more useful story.
Formula
i = rate / 12; A = P × i / (1 - (1 + i)^(-n)). Interest = n × A - P for each scenario. Monthly saving = current payment - new payment. Break-even months = closing costs / monthly saving. Lifetime saving = current interest - new interest - closing costs.
Worked example
Refinancing a $320,000 balance from 6.2% with 240 months left to 4.8% over 240 months lowers the payment from $2,329.65 to $2,076.66, a saving of $252.99 a month. With $4,000 of costs, the break-even is 15.81 months. Interest falls from $239,116.97 to $178,399.34, so the lifetime saving is $56,717.64 after costs.
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Frequently asked questions
Should I extend the term when refinancing?
Extending lowers the payment but adds interest. Compare the lifetime saving rather than the payment alone; the total saving figure already accounts for the longer term.
What costs should I enter?
Include the prepayment penalty or interest differential, discharge and registration fees, legal fees, an appraisal and any lender application fee. Costs paid from the new loan rather than in cash would also add to the balance.
Will a refinance affect my credit score?
There is usually a credit inquiry and possibly a new account on your file. The effect is normally temporary, but this calculator does not model credit scoring.
Does this include mortgage default insurance?
No. A refinance with a loan-to-value above 80% may require insurance in Canada, which adds a premium. Add any premium to the balance before comparing.