Replace a mortgage · Compare total cost
How to compare a mortgage refinance
A refinance can change the rate, payment, term, loan balance, and home equity at the same time. Compare the complete new loan with the cost of keeping the mortgage you already have.
The short answer
A refinance pays off and replaces the current mortgage. Compare both choices over the same future period, including interest, fees, mortgage insurance, cash received, and the effect of a longer or shorter repayment term.
01 · Existing loan
Measure the new loan from today's balance, not the original loan
Start with a recent statement and payoff quote. Record the amount needed to pay off the current mortgage, interest rate, principal and interest payment, mortgage insurance, remaining months, and any prepayment penalty. The original loan amount and term no longer describe the choice in front of you.
The new principal balance can include payoff amounts and financed closing costs. Confirm exactly why the new balance differs from the current payoff amount.
02 · Payment change
A lower payment is not the same as a lower total cost
A payment may fall because the interest rate is lower, the new term is longer, mortgage insurance changes, or costs are moved into the loan. Extending repayment can reduce the monthly amount while increasing the number of payments and interest paid over time.
Compare principal and interest separately from taxes, insurance, and escrow. A different estimate for property charges does not necessarily make one lender's loan less expensive.
03 · Upfront and financed costs
No-closing-cost refinancing still has a cost
CFPB guidance explains that a lender may offset upfront costs with a higher interest rate and lender credit, or add costs to the new loan amount. The first approach can increase payments over time; the second increases the balance, interest expense, and amount of home equity used by the transaction.
- Current payoff amount, rate, payment, remaining term, and mortgage insurance
- New loan amount, rate type, term, points, credits, and total payment
- Cash paid at closing and costs added to the new balance
- Cash-out proceeds separated from the amount used to refinance
- Cost of keeping each loan over the same expected holding period
- Prepayment penalty, rate-lock terms, and refinance closing timeline
04 · Comparable horizon
Test the shortest and longest time you may keep the new loan
Compare the cost of keeping the existing mortgage and taking each refinance offer over the same period. Include upfront and financed costs, interest, mortgage insurance, and remaining principal. A simple break-even estimate can divide upfront refinance cost by monthly savings, but it misses balance differences, financed costs, and payment changes, so use it only as a first screen.
The five-year comparison on page 3 of a Loan Estimate can help compare standardized offers, but use a period that also reflects when you may move, refinance again, or finish paying the loan.
05 · Equity withdrawal
Separate cash received from the cost of refinancing
In a cash-out refinance, part of the new debt is money delivered to the borrower rather than an amount needed to replace the old mortgage. Record that amount separately. Interest and fees can apply to a larger secured balance, and the transaction reduces the homeowner's remaining equity.
06 · Payoff and closing
Check penalties, disclosures, and any right to cancel
Review the current note and addenda for a prepayment penalty, then verify the final new-loan terms against the latest Loan Estimate. Most non-purchase-money mortgages may have a three-business-day right of rescission, but exceptions exist and the timing rules are specific. Follow the lender's notice rather than assuming every refinance can be cancelled.
CFPB guidance says cancellation must be sent in writing before the applicable deadline. Keep a copy and evidence of timely mailing or delivery. Continue paying the original loan unless and until the transaction is actually completed or cancelled.
07 · Preserve the comparison
Keep the documents that connect the old and new loans
- Current mortgage statement and written payoff quote
- Promissory note and any prepayment-penalty addendum
- Comparable Loan Estimates from more than one lender
- Written rate-lock and no-closing-cost option details
- Latest Closing Disclosure and right-to-cancel notices
- Evidence of any timely written rescission notice
08 · Official guidance