How this calculation works
Amortize both alternatives from the same outstanding principal. Compare their monthly cash flows through the longer term, using zero payments after payoff. Count a recovery point only if cumulative savings do not turn negative again within that horizon.
Nominal saving = all old payments − all new payments − upfront feesA worked example
Refinancing ₹1,00,000 from 12% to 6%, both over 12 months, with ₹500 paid upfront saves approximately ₹2,838.83 in nominal remaining costs under this model.
Good to know
No cash-out amount, financed fees, tax, insurance, changing rate or early sale is included. A lower monthly payment alone does not prove lower total cost. The break-even is nominal cash recovery, not discounted NPV or a lender approval.
Reference: CFPB: refinancing can involve closing costs and fees (opens in a new tab) ↗
Compare everything still payable
The starting point is the current outstanding principal, not the original amount borrowed years ago. Amortize that balance under the old remaining terms and again under the proposed new terms. Then add the new upfront fees to the new payment stream.
In the default one-year example, the lower new rate reduces total modeled payments enough to cover the ₹500 fee, leaving approximately ₹2,838.83 nominal saving. These are remaining cash costs, with no discounting or tax effect.
The loan prepayment calculator evaluates keeping a loan while adding principal payments. Compare its assumptions separately from an offer with a new rate and term.
A smaller installment can hide a longer commitment
Extending the new term can lower its monthly payment while increasing the number of payments. The comparison continues until both loans are paid, assigning zero to a loan after payoff. This keeps the lower monthly amount from being mistaken for an automatic total saving.
The cash versus installments calculator separately compares present costs using an opportunity-cost discount rate. The annual cash flow NPV calculator can evaluate another consistently timed stream, but this monthly refinancing result is deliberately a nominal comparison.
Break-even should not disappear later
A new loan can show early positive cumulative cash savings and later lose them if payments continue long after the old loan ends. The reported sustained recovery point must stay non-negative through every remaining modeled month.
An early sale, cash-out refinance or fees added to principal would change the cash flows. They are outside this version. The upfront fee input is paid now and the new loan begins with exactly the same principal as the old loan.
A few questions, answered
Why does the table continue after one loan ends?
The remaining payments on the other loan still matter for total cost and sustained recovery.
Can the result favor the old loan despite a lower new payment?
Yes. Fees and a longer new term can outweigh a lower monthly installment.
Is the break-even discounted?
No. It tracks cumulative nominal cash differences over the full comparison horizon.