Should You Refinance a $250,000 Mortgage at 8.0%?

The decision to refinance a $250,000 mortgage from an 8.0% APR, with $6,000 in closing costs, hinges on whether the new interest rate and term offer a net reduction in total interest paid over time. The table below shows the financial impact of refinancing at different APRs and loan terms—specifically, the amount of interest paid over the life of the loan and the monthly payment—across a range of scenarios.

How Lower Rates Can Reduce Total Interest Paid

A mortgage at 8.0% APR on a $250,000 loan results in $6,000 in closing costs, which are typically paid upfront. Refinancing to a lower rate—such as 5.5% or 6.0%—can significantly reduce the total interest paid over the life of the loan, especially when the new term is shorter. For example, shifting from a 30-year to a 15-year term at a lower rate can cut total interest by over 40%, even though monthly payments rise. This trade-off is most beneficial for borrowers who are comfortable with higher monthly outlays and have a stable income.

Why a 15-Year Term May Be Worth the Higher Monthly Payment

A 15-year term at 5.5% APR cuts total interest by nearly $60,000 compared to a 30-year loan at 8.0%. While the monthly payment increases by about $300–$400, the borrower pays almost half the total interest over the life of the loan. This structure accelerates equity growth and reduces long-term financial exposure to rising interest rates. However, it only makes sense if the borrower has sufficient cash flow to absorb the higher monthly cost. For someone with a fixed income or limited liquidity, this option may not be practical.

When a 30-Year Refinance with a Lower Rate Still Makes Sense

A 30-year refinance at 6.0% APR still saves about $30,000 in total interest compared to the original 8.0% loan, even with $6,000 in closing costs. The monthly payment drops by roughly $250, and the borrower avoids the steep increase in payments associated with a 15-year term. This option is ideal for those who prioritize predictable monthly budgets and want to preserve cash flow. While the total interest paid is higher than a 15-year loan, it remains a net positive compared to the original rate.

What the Numbers Really Mean: Trade-Offs and Real-World Impact

The table below shows the total interest paid and monthly payments for different APRs and terms. The key insight is that refinancing only makes financial sense if the total interest saved exceeds the $6,000 in closing costs. For instance, at 5.5% APR over 15 years, the interest saved is over $60,000—more than enough to cover the upfront costs. At 6.0% over 30 years, savings are still substantial, though less dramatic. Borrowers should avoid refinancing at rates above 6.5% unless they have a compelling reason—such as locking in a rate that’s expected to rise. The most common mistake is focusing only on monthly payments. A 15-year loan may have lower monthly payments than a 30-year loan, but it actually costs more in total interest. The real metric is total interest paid over the life of the loan—not just the monthly figure.

How We Calculated This

We used a standard amortization formula to calculate total interest paid over the life of each loan, assuming a $250,000 principal, a fixed interest rate, and a level payment schedule. The $6,000 closing cost was subtracted from the total interest savings to determine net benefit. All calculations were based on a 30-year term unless otherwise specified. The table below shows the exact data for each APR and term combination.

Refinancing a $250,000 mortgage from 8.0% ($6,000 closing costs)

New Rate	New Payment	Monthly Savings	Break-Even	Interest Saved (30y)
6.5%	$1,580	$254	24 months	$85,527
7.0%	$1,663	$171	35 months	$55,616
7.5%	$1,748	$86	69 months	$25,095