How to work out whether refinancing is worth it

A lower rate is not automatically a saving. The fees and the reset term decide it.

Refinancing replaces an existing loan with a new one. The pitch is a lower monthly payment; whether you actually gain depends on three things the pitch usually omits.

Step-by-step

1. Enter your current loan — balance, rate, and months remaining.
2. Enter the proposed loan — rate, term and fees.
3. Read the comparison, including total interest and break-even.

Break-even is the number that matters

Refinancing costs money up front — arrangement fees, valuation, legal work, sometimes an early repayment charge. Divide that total by the monthly saving and you have the number of months before you are ahead.

If break-even is eighteen months and you might move in a year, refinancing loses you money regardless of how much better the rate looks.

The trick with the term

Much of the advertised "saving" often comes from restarting the clock. Refinancing twenty years remaining into a fresh twenty-five-year term lowers the monthly payment substantially — and you pay for five more years. That is not a saving, it is a rescheduling, and it usually costs more in total interest.

Compare like with like: set the new term to the months remaining on the old loan. If the payment still falls, the rate is genuinely better.

What the calculator cannot know

Whether the rate is fixed and for how long, whether early repayment is allowed, and what happens when a fixed period ends. A slightly higher fixed rate can be worth more than a lower variable one, and no calculator can price that for you.

Frequently asked questions

How do I calculate the break-even?

Total fees divided by the monthly saving gives the number of months before refinancing pays for itself. If you might move or repay before then, it is not worth it.

Why is my monthly payment lower but total cost higher?

Because the term restarted. Spreading the same debt over more years lowers each payment and raises the total interest. Compare against the same remaining term to see the real difference.

Should I include the early repayment charge?

Yes, in the fees. It is often the largest single cost and it is what most frequently makes an apparently attractive refinance not worth doing.