You have been paying on your mortgage for a while. Then a refinance quote shows up with a lower payment, and a quiet worry comes with it. Am I starting over?
The plain answer
Yes. A refinance pays off the old loan with a new one, and the new loan starts at payment one. Sign for 30 years and you have 30 years of payments ahead of you again, no matter how many you already made.
The restart does not have to go back to 30, though. The term is a choice, and the Refinance tab has four: 30 Years, 20 Years, 15 Years, and 10 Years. So the better question is what you reset the clock to, and what each choice costs.
Why a restart lowers the payment
Your payment is the balance spread over the months you have left. Stretch the same balance over more months and each payment gets smaller. So part of the drop on a quote comes from the rate and part comes from the stretch, and the payment alone cannot tell you which is which.
The stretch has a price. Interest is charged every month you still owe money, so added years mean added interest. Sometimes the lower rate wins anyway. Sometimes the extra years win, and you pay more in total for a smaller monthly bill. The Lifetime Interest Savings line tells you which one happened on your loan.
Type Years Remaining first
Open the Refinance calculator. Go to Years Remaining before you touch a rate or the term. It loads with a sample value that is not yours.
This field drives the whole current side of the math. Current Payment (P&I), and the interest your current loan would cost if you paid it as scheduled to the end, both come from Current Loan Balance and Current Rate spread over Years Remaining. Get this field wrong and both comparisons go wrong with it.
Find the maturity date on your statement or in your loan papers and count the whole years from now. If the statement lists payments left instead, divide by 12. The box drops anything after a decimal point without rounding, so round it yourself before you type.
Then check it. Once the balance and rate are in, Current Payment (P&I) should land close to the principal and interest part of your statement, not the full payment with escrow for taxes and insurance. Past extra payments can explain a small gap. A big gap usually means one of the three inputs is off.
One trap. A blank box, or a zero, runs as 30 with no warning. That makes a fresh 30 look like it adds no time at all, which is the exact thing you came here to check.
Fill the rest of the tab
Rates and costs come from your own quote. BankPricer gives no rate, and whatever sits in New Rate when the page loads is not your rate.
- Refinance Type. Conventional is selected on load. Pick the one that matches your quote. With the roll box checked, FHA and FHA Streamline add a 1.75% upfront MIP to the new loan and VA IRRRL adds a 0.50% funding fee. Conventional adds nothing.
- Home Value. Your honest estimate. It feeds the LTV after refi row. Conventional is capped at 95% LTV here, and the read box flags it if you go over.
- Current Loan Balance. The principal balance from your latest statement.
- Current Rate. The rate on your current note.
- New Rate. For the first run, the rate on your 30-year quote.
- New Term. 30 Years for the first run.
- Closing Costs. The cost of the refinance from your quote.
- Roll closing costs into new loan. Checked on load. Leave it checked if the costs go into the new balance. Uncheck it if you pay them in cash.
Run one: a fresh 30
With New Term on 30 Years, write down Monthly Savings, New Payment (P&I), Lifetime Interest Savings, and the Refinance read text.
Most quotes are built around this run. If you had fewer than 30 years left, it puts years back on the clock, and the monthly savings often look good. Look a few rows down at Lifetime Interest Savings before you get attached.
Run two: the term that matches your years left
Now set New Term to the option that matches your Years Remaining, or comes closest. If you sit between two of the four, run both neighbors. One ends a little before your current payoff date and one a little after.
Change New Rate too. A quote for a shorter term comes with its own rate, so ask for that quote and type its rate. The 30-year rate on a shorter run gives you a number nobody offered you.
Leave everything else alone, including Closing Costs unless the shorter quote lists different ones.
Reading the two runs side by side
Start with Lifetime Interest Savings. A plain dollar amount means the new loan, as you entered it, costs less in interest than finishing the loan you have. A minus sign right after the dollar sign means it costs more. On the FHA options the line also subtracts MIP over the whole new term.
The current side is the same in both runs, because Years Remaining, balance, and rate did not move. So when both quotes carry the same closing costs, the gap between your two lifetime lines is what the longer term, at its own quoted rate, costs you in interest, plus any MIP difference on the FHA options.
Next, Monthly Savings. On run two it is usually smaller and can go negative, which means the matched term costs more per month than you pay now. Break-even, the months it takes savings to repay closing costs, then reads "never." That clock has its own post.
Now the read box. On Conventional, if the payment does not drop, it says "Refinance does NOT lower your payment at these terms." and stops before it ever reaches the lifetime line. The FHA and VA IRRRL options stop early too, in their own words. So on a matched run with a higher payment, the box can read like a no while the line above it shows a real saving. Read the line yourself.
On a fresh 30 with a lower payment and a negative lifetime line, the box is blunt. It says the extra total cost comes "from resetting the term," and to refinance only if cash flow matters more than total cost, or to pick a shorter new term. That is the tab's own reset warning. If you see it, do run two.
A negative line on a fresh 30 is not a mistake by default. Some people want the monthly room more than the lower total, and they take the trade on purpose. Some take the fresh 30 and send extra each month to pull the payoff back toward the old date, which only works if the extra really gets sent. A shorter term that squeezes your budget is no prize either. Your call. Make it knowing the number.
What the line cannot see
Both sides assume each loan runs to its last scheduled payment with no extra payments, and that you neither sell nor refinance again. Move or refinance again and neither loan runs its course, so your real result will differ from both lines.
With the roll box checked, the line counts interest on the rolled closing costs but not the costs themselves, so a small positive number can still leave you behind. Unchecked, the tab subtracts the cash you pay.
If your current loan is FHA with monthly MIP, the current side leaves that MIP out. Only the new side counts it, so the comparison leans a little against the refinance.
Taxes and homeowners insurance are not in either P&I figure.
A second pair of eyes
Bring both runs. We can check your Years Remaining against your statement first. Then we can set your two lifetime lines next to real quotes, each with its own rate and closing costs. I work out of Chicago, and a phone call works as well as a table.
A calculator result is not a commitment to lend.
Jeff Shin, NMLS 1041652. Barrett Financial Group, L.L.C. Chicago. Company NMLS 181106. Equal Housing Lender. Not a commitment to lend.