Refinancing Tips · March 31, 2025
How Much Can You Save by Refinancing? A Real-Numbers Guide
Before you refinance, calculate exactly how much you will save. Here is a real-numbers framework that shows monthly savings, total interest reduction, and break-even timeline.
Refinancing feels like an obvious win when rates drop. But the actual savings depend on several variables — and not all refinances are equally beneficial.
The Monthly Savings Calculation
The most straightforward comparison: current monthly payment vs. proposed new monthly payment.
Example: $280,000 remaining balance at 7.5% (30-year, 5 years into the loan) = $1,959/month P&I. Same balance refinanced to 6.5% on a new 30-year = $1,769/month P&I. Monthly savings: $190/month.
The True Savings: Total Interest Paid
Monthly savings only tells part of the story. The more important question is total interest paid over the remaining loan life.
Continuing the example: current loan has 25 years remaining at 7.5% = $290,000 more in interest. Refinance to 6.5% for 30 years = $357,000 in total interest. Net: you save $190/month but pay $67,000 more in total interest by resetting to 30 years.
This is why refinancing to a shorter term or comparing apples-to-apples remaining term matters.
The Better Comparison: Same Term
If instead you refinance $280,000 into a new 25-year term at 6.5%: monthly payment $1,886 (saves $73/month) AND total interest $285,800 vs. $290,000 on current loan. This saves both monthly AND total interest.
The Break-Even Point
Break-even = Total Closing Costs divided by Monthly Savings.
$6,000 closing costs divided by $190 monthly savings = 31.6 months.
If you plan to stay longer than 31.6 months, refinancing pays off.
HMS runs this full analysis for every borrower. Call 309-222-8286.