Overview
When interest rates shift or your finances improve, you face a choice: make extra payments to pay off your current mortgage faster, or refinance into a new loan with better terms. Both strategies can save tens of thousands in interest, but the best choice depends on your rate, remaining balance, and timeline.
The Mortgage Payoff Calculator shows how extra payments shorten your loan and reduce total interest. The Refinance Optimizer compares your current loan with a new one to see if refinancing is worth the closing costs.
Key Differences
**Approach:** Extra payments reduce your existing loan principal faster. Refinancing replaces your loan entirely with new terms.
**Costs:** Extra payments have no additional fees. Refinancing typically costs 2-5% of the loan amount in closing costs.
**Rate impact:** Extra payments do not change your interest rate. Refinancing can lock in a lower rate.
**Flexibility:** You can start and stop extra payments anytime. Refinancing is a one-time commitment with closing costs to recoup.
**Timeline:** Extra payments work best when you plan to stay for 5+ more years. Refinancing requires enough time to break even on closing costs.
When to Use the Mortgage Payoff Calculator
- You already have a good interest rate and do not want to refinance - You have extra cash flow and want to see the impact of additional monthly payments - You want to calculate how much a one-time lump sum payment would save - You are comparing different extra payment amounts to find one that fits your budget - You want to see exactly when your mortgage would be paid off with accelerated payments
When to Use the Mortgage Refinance Calculator
- Current rates are significantly lower than your existing mortgage rate - You want to switch from a 30-year to a 15-year term to save on interest - You want to lower your monthly payment by extending the term or getting a better rate - You need to calculate the break-even point to see if refinancing closing costs are worth it - You want to eliminate PMI by refinancing with 20%+ equity
Frequently Asked Questions
Q: How much lower does the new rate need to be to justify refinancing? A: The old rule of thumb was 1-2% lower, but it depends on closing costs and how long you will stay. Use the refinance calculator to find your specific break-even point.
Q: Can I make extra payments AND refinance? A: Yes. You can refinance to a lower rate and then make extra payments on the new loan for maximum savings.
Q: Are there prepayment penalties for extra mortgage payments? A: Most modern mortgages have no prepayment penalties, but check your loan documents. Some older or non-conventional loans may have them.
Q: Which saves more interest overall? A: It depends on the rate difference. If you can drop your rate by 1.5%+ and stay for 5+ years, refinancing often saves more. If rates are similar, extra payments avoid closing costs and still reduce interest significantly.
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