Refinance to a Shorter Term Calculator
See what happens to your payment and total interest when you refinance into a shorter loan at a lower rate — and whether the closing costs pay off.
How it works
Payment = P·r ÷ (1 − (1+r)^−n) · Total interest = payment × months − balance · Net savings = interest saved − closing costs
Refinancing into a shorter term does two things at once: a lower rate cuts the interest on every dollar, and fewer years mean far less interest overall. The trade-off is a higher monthly payment, because the same balance is repaid faster. This tool shows the payment jump alongside the lifetime interest saved, then nets out closing costs so you can see whether the switch actually pays for itself.
Worked example
A $250,000 balance at 7% with 25 years left costs about $1,767 a month. Refinancing to 6% over 15 years raises the payment to about $2,110 — roughly $343 more — but total interest falls from around $280,000 to $130,000. Even after $4,000 in closing costs, that is close to $146,000 saved.
Frequently asked questions
Why does the payment go up if the rate goes down?
Because you are compressing the payoff into far fewer years. A 15-year loan repays principal more than twice as fast as a 25-year one, so even at a lower rate each monthly payment is larger. The reward is dramatically less total interest.
Is a shorter term better than just paying extra?
A shorter term locks in the lower rate and forces the faster payoff, which many people prefer for discipline. Paying extra on your current loan keeps flexibility but does not capture the lower rate. Compare both — sometimes the rate drop alone justifies refinancing.
What if closing costs wipe out the savings?
If net savings are negative, the refinance costs more than it saves over the loan — usually because the rate improvement is small or you plan to move soon. In that case, keep the current loan or shop for lower closing costs.
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This is an educational estimate, not financial advice. Real results depend on rates, taxes, fees and market returns that no calculator can guarantee — confirm figures with your lender or a licensed advisor.