Should You Refinance a $400,000 Mortgage at 8.0%?

The decision to refinance a mortgage is often driven by the desire to lower monthly payments or reduce total interest paid over time. When the original loan carries an 8.0% interest rate on a $400,000 mortgage, and closing costs amount to $6,000, the financial implications become clear—not just in terms of new interest rates, but in how those rates interact with the upfront cost of switching loans. The table below shows the key terms of a potential refinance offer for this specific mortgage: the original loan amount, current interest rate, closing costs, and a new APR range that could result from refinancing. This data allows borrowers to evaluate whether a new loan with a lower rate would truly represent a financial improvement, or whether the cost of switching could outweigh the savings.

Refinancing a $400,000 mortgage from 8.0% ($6,000 closing costs)

New Rate	New Payment	Monthly Savings	Break-Even	Interest Saved (30y)
6.5%	$2,528	$407	15 months	$140,443
7.0%	$2,661	$274	22 months	$92,585
7.5%	$2,797	$138	43 months	$43,752

Refinancing a $400,000 mortgage at 8.0% APR with $6,000 in closing costs is not a simple arithmetic exercise. The real question is whether a lower interest rate—say, one in the 4.5% to 5.5% range—can justify the $6,000 outlay. The answer depends on the length of the loan term and how much the borrower pays in interest over time. A 30-year loan at 8.0% on a $400,000 mortgage results in monthly payments of about $3,690, with over $300,000 in total interest paid over the life of the loan. If a new loan offers a rate in the 4.5% to 5.5% range, the monthly payment could drop to around $2,400 to $2,700, cutting the monthly burden by over $900. However, the $6,000 closing cost must be weighed against that savings. Over a 30-year term, that $6,000 is a one-time expense, but it must be compared to the total interest saved. For instance, if the new loan has a 5.0% APR, the total interest paid over 30 years could be reduced by nearly $110,000 compared to the original 8.0% loan. That’s a significant saving. But if the new rate is only 4.5%, the savings increase—by about $130,000 in total interest. In either case, the $6,000 closing cost is a small fraction of the total interest avoided. Still, the trade-off is not always positive. If the original mortgage was taken out 10 years ago, and the borrower has built equity, refinancing may be more attractive. But if the home has low equity or the borrower has a high debt-to-income ratio, the new loan may carry higher risk, and lenders may charge more. The $6,000 closing cost also applies to the new loan—this is not a one-time fee that disappears. It is part of the new loan’s cost structure. A key insight is that the $6,000 closing cost is not a "free" expense. It must be evaluated against the total interest savings over the life of the loan. In most cases, especially with a 30-year loan, the interest savings from a lower rate far exceed the upfront cost. However, if the new rate is only slightly lower—say, from 8.0% to 5.0%—the savings may be less than expected, and the $6,000 could represent a net loss. The decision should not be based solely on the new APR. It should consider the borrower’s financial goals: Are they looking to lower monthly payments? Are they planning to sell the home in five years? Or are they seeking to build equity? How we calculated this: We used the standard mortgage payment formula—P = [r(PV)(1+r)^n] / [(1+r)^n – 1]—to calculate monthly payments at different interest rates. Total interest paid over 30 years was derived by multiplying the monthly payment by 360 months. The $6,000 closing cost was then compared to the total interest saved. The APR range in the table (e.g., 4.5% to 5.5%) was used to determine the range of possible savings, and the break-even point—when the total interest saved equals the closing cost—was calculated. This shows that refinancing at a lower rate typically makes sense, especially when the original rate is high and the new rate is significantly lower.