Guide

Refinance vs Prepay: Which Path Lowers Total Cost?

Updated May 2026

Reviewed by the Simple Mortgage Plan Editorial Team

This tool compares two options: keep your current loan and add extra monthly principal, or refinance and pay closing costs.

Decision Calculator

These charts compare total cost and payoff time for both paths.

If you may sell or move before refinance break-even, refinancing can be less attractive even with a lower rate.

Rate reduction is meaningful, closing costs are moderate, and your expected homeownership period exceeds break-even.

You need flexibility, may move sooner, or can consistently send extra principal without reducing emergency reserves.

Some borrowers refinance first for payment relief and then apply part of the monthly savings as extra principal.

Include title, recording, lender fees, and prepaid escrow items in total refinance cost.
Check whether PMI or insurance terms change under a refinance scenario.
Confirm whether extending term increases total lifetime interest despite lower monthly payment.
Stress-test both options against job interruption or large home repair expenses.