Refinance break-even calculator
Compare your current mortgage payment with a refinanced one, and see how many months of savings it takes to recover the closing costs.
Remaining balance model. Assumes fixed rates and that closing costs are paid upfront.
How this calculator works
Refinancing replaces one loan with another, usually to get a lower rate. It is not free: lenders charge closing costs, typically 2–5% of the balance, and those costs are paid from savings or rolled into the new loan. The break-even point is simply the closing cost divided by the monthly payment saving. Stay in the home longer than that and the refinance puts you ahead; sell sooner and you lose money.
A second effect is easy to miss: a refi can lower the payment by stretching the term back out. That lowers the monthly bill but can increase total interest, because you are borrowing for longer. The lifetime interest line here compares the remaining interest on the current loan with the total interest on the new loan, minus the closing costs, so a “lower payment” refinance that adds years shows up as a negative number.
The formula
Compute both payments with the amortisation formula, then:
monthly saving = old payment − new payment
break-even months = closing costs / monthly saving
lifetime saving = (old total interest − new total interest) − closing costsIf the new payment is higher — for example when shortening the term — the break-even is never reached through monthly savings, but the shorter term can still reduce total interest; read the lifetime line for that case.
Worked example
Refinancing a 250,000 balance from 7% with 25 years left to 5.50% over 25 years cuts the payment by $231.73. With 4,000 of closing costs the break-even is 18 months; over the full new term the interest saving after costs is $65,519.
Common mistakes
- Comparing rates instead of payments. Points, fees and the new term all change the real comparison. Use the total interest and break-even figures.
- Restarting the clock. Moving a 22-year remaining balance back to 30 years lowers the payment but can raise lifetime interest sharply.
- Refinancing for a small saving. If closing costs are several thousand dollars and the monthly saving is $50, the break-even may be longer than you plan to stay.
Frequently asked questions
When does refinancing make sense?
When the rate drop is large enough that the monthly saving repays the closing costs well before you expect to sell, and when the new terms fit your plans. A common rule of thumb is a drop of 0.75–1% or more, but the break-even maths matters more than the rate alone.
Can I roll closing costs into the new loan?
Often yes, but that raises the new balance and therefore the payment and interest. The break-even calculation here assumes costs are paid upfront; rolling them in adds a little to every payment.
Does refinancing hurt my credit score?
A refinance involves a hard credit inquiry that can lower scores slightly, and the new account shortens your average account age. The effect is usually temporary, and shopping multiple lenders within a short window is treated as one inquiry by most scoring models.
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