Ok, I know the basics: That you find a lender to pay off your original loan at a lower rate so you save money on interest.

However, wouldn’t you be saving money by financing only the amount that had not yet been paid off vs. the entire orignal principle? Let’s assume that the interest rate remains the same.

For instance, your original loan was for $25k over 60 months at 6% annual, making your payments about $483.32 per month. Say you make those payments for two years (24 months) and then choose to refinance.

You want to stick to the five-year pay off period, so you refinance the remaining $13400.32 over 36 months at 6%, reducing your monthly payments to $407.66.

Now let’s assume that you’re able to refinance at a better rate:

You want to stick to the five-year pay off period, so you refinance the remaining $13400.32 over 36 months at 4%, reducing your monthly payments to $395.63.

So, if you refinance at a lower rate, you end up saving based on both the lower rate AND the smaller principle, right?

Am I right? Did I miss something?