Refinancing your home loan is one of the smartest financial moves homeowners can make when market conditions are favorable. By lowering your interest rate or adjusting your loan term, refinancing can significantly reduce your monthly payments, save you thousands in interest, and help you build equity faster. The Zillow Refinance Calculator is designed to make this process simple and transparent by providing quick estimates of potential savings and new payment structures.
Zillow Refinance Calculator
What is the Zillow Refinance Calculator?
The Zillow Refinance Calculator is an online tool that helps homeowners evaluate whether refinancing their mortgage makes financial sense. It compares your current loan terms with potential new loan offers to calculate:
- Estimated monthly payment after refinancing
- Interest savings over the life of the loan
- Total refinancing costs vs. benefits
- Break-even point (how long before savings outweigh refinancing costs)
This tool saves time by eliminating guesswork, helping you make informed decisions before applying for a refinance.
How to Use the Zillow Refinance Calculator
Using the calculator is straightforward. You’ll need the following details:
- Current Mortgage Information
- Current loan balance
- Remaining loan term (in years)
- Current interest rate
- Monthly mortgage payment
- Refinance Information
- New loan amount
- Proposed interest rate
- Loan term (in years)
- Closing costs (if applicable)
- Results
- New monthly payment
- Total interest savings (or cost)
- Break-even point in months
Step-by-Step Guide
- Enter your current mortgage balance (e.g., $250,000).
- Input your remaining term (e.g., 25 years).
- Provide your current interest rate (e.g., 6.5%).
- Enter the proposed refinance interest rate (e.g., 5.2%).
- Specify your closing costs (e.g., $3,000).
- Click calculate – the tool will instantly show you the new monthly payment, total interest savings, and break-even time.
Formula Behind the Calculator
The calculator uses the standard mortgage payment formula:
Monthly Payment (M) = P × [r(1+r)^n] / [(1+r)^n – 1]
Where:
- M = Monthly payment
- P = Loan amount (principal)
- r = Monthly interest rate (annual rate ÷ 12)
- n = Total number of payments (years × 12)
To find interest savings, it compares the total interest of the old loan with the total interest of the new refinanced loan.
Interest Savings = (Old Total Interest – New Total Interest) – Closing Costs
The break-even point is calculated as:
Break-even Point = Closing Costs ÷ Monthly Savings
Example Calculation
Let’s assume:
- Current loan balance = $250,000
- Remaining term = 25 years (300 months)
- Current interest rate = 6.5%
- Refinanced interest rate = 5.2%
- Closing costs = $3,000
Step 1 – Current Loan Payment
Monthly payment = $1,689 (approx.)
Step 2 – New Loan Payment
Monthly payment = $1,496 (approx.)
Step 3 – Monthly Savings
$1,689 – $1,496 = $193 per month
Step 4 – Break-even Point
$3,000 ÷ $193 ≈ 15.5 months
Step 5 – Total Savings
Over the remaining 25 years, refinancing saves nearly $58,000 in interest after accounting for closing costs.
Benefits of Using a Refinance Calculator
- Quick decision-making – Helps you instantly evaluate options.
- Saves money – Prevents you from refinancing when it isn’t beneficial.
- Clear comparisons – Shows exact monthly and long-term savings.
- Financial planning – Helps decide whether refinancing aligns with your goals (lower payments vs. paying off loan faster).
Additional Helpful Information
- When is Refinancing a Good Idea?
- Interest rates have dropped significantly since your original mortgage.
- You plan to stay in the home long enough to pass the break-even point.
- You want to shorten your loan term and pay off debt faster.
- You want to switch from an ARM (adjustable-rate mortgage) to a fixed-rate mortgage for stability.
- When is Refinancing Not Worth It?
- If you’re moving in a few years and won’t recoup closing costs.
- If new loan terms increase total interest over the long term.
- If your credit score or debt-to-income ratio results in higher interest rates.
20 Frequently Asked Questions (FAQs)
1. What is a refinance calculator used for?
It estimates potential savings, new payments, and break-even time when refinancing a mortgage.
2. Does refinancing always save money?
Not always—if closing costs are too high or loan terms are unfavorable, refinancing may not be worth it.
3. How do I know if I should refinance?
If your new interest rate is at least 1% lower, it’s usually worth considering.
4. What is the break-even point in refinancing?
It’s the time it takes for savings from refinancing to cover closing costs.
5. Can I refinance with bad credit?
Yes, but you may not get favorable rates. A higher credit score usually means better refinance options.
6. How much does refinancing cost?
Closing costs typically range from 2% to 6% of the loan amount.
7. Can I roll closing costs into my refinance?
Yes, many lenders allow you to include costs in your new loan balance.
8. Is refinancing worth it if I plan to sell my home soon?
Usually not, because you may not stay long enough to recover closing costs.
9. Does refinancing hurt my credit score?
Yes, temporarily due to credit inquiries, but it usually recovers within months.
10. Can I refinance more than once?
Yes, there’s no limit, but each refinance comes with costs.
11. What is a cash-out refinance?
It allows you to refinance for more than you owe and take the difference as cash.
12. Can refinancing shorten my loan term?
Yes, refinancing to a shorter term can save interest and help pay off your home faster.
13. Should I refinance if rates drop by only 0.5%?
It depends on your balance, loan term, and closing costs—sometimes small drops still save thousands.
14. What documents are needed to refinance?
Typically pay stubs, W-2s, tax returns, credit report, and current loan details.
15. Can I refinance into an FHA or VA loan?
Yes, if you meet eligibility requirements for those loan types.
16. Does refinancing reset my loan term?
It can, but you can choose to refinance into a shorter term if desired.
17. How long does a refinance take?
Usually between 30–45 days, depending on the lender.
18. Can refinancing remove PMI (Private Mortgage Insurance)?
Yes, if your new loan balance is below 80% of your home’s value.
19. Is refinancing tax deductible?
Mortgage interest on your new loan may still be deductible, depending on tax laws.
20. Does refinancing require an appraisal?
Most lenders require a new appraisal to determine your home’s current market value.
Final Thoughts
The Zillow Refinance Calculator is a powerful tool for homeowners who want to explore their refinancing options. By comparing your current mortgage with potential new terms, you can make informed decisions that save money, reduce monthly payments, and help achieve long-term financial stability.