Refinance break-even calculator
The refinance break-even point is total closing costs divided by monthly payment savings: break-even months = C ÷ (M_old − M_new). If closing costs are $4,800 and the new payment is $200 lower, you break even after 24 months. Refinancing makes sense only if you expect to keep the new loan longer than that.
The formula
Break-even months = C ÷ (Mold − Mnew)
- C
- Total closing costs paid in cash for the new loan (lender fees, title, appraisal, points)
- Mold
- Current monthly principal-and-interest payment
- Mnew
- New monthly principal-and-interest payment
Worked example
Suppose a lender’s Loan Estimate shows $4,800 in closing costs, and the new principal-and-interest payment is $200 a month lower than the current one. Break-even = $4,800 ÷ $200 = 24 months. After two years the savings have repaid the costs, and every month after that is net savings. If you expect to sell or refinance again within two years, this refinance would lose money.
Both payments come from the amortization formula on the mortgage payment calculator page; use the remaining balance and remaining term for the current loan, and the new loan amount and term for the new one.
When the simple formula misleads
- Rolling costs into the loan. If closing costs are financed, you pay little cash up front, but the larger balance raises the new payment and you pay interest on the costs. Use the higher financed balance when computing Mnew.
- Resetting the term. Refinancing a loan with 22 years left into a new 30-year loan lowers the payment partly by stretching it out. Monthly savings look larger while total interest may rise.
- Equity build-up. A lower rate means more of each payment reduces principal. The app’s full refinance analysis counts this by comparing both amortization schedules month by month and finds the first month where cash savings plus the equity difference covers the costs.
- Mortgage insurance and escrow. Changes in mortgage insurance affect real savings; escrow deposits are not a cost of the refinance.
How to use it
Get Loan Estimates from more than one lender, take total closing costs from section D (or A + B + C) and the new monthly principal and interest from page 1, and compare with the principal and interest on your current statement. Then compare the break-even months with how long you plan to stay. To be alerted when market averages fall to a level worth checking, set a target rate, and see the weekly rates page for the latest averages.
Frequently asked questions
How do you calculate a refinance break-even point?
Divide total closing costs by the monthly payment savings. For example, $4,800 in costs ÷ $200 per month in savings = 24 months to break even.
What is a good break-even period for a refinance?
It depends on how long you will keep the loan. A refinance pays off only if you keep the new loan longer than the break-even period, with some margin for uncertainty.
Should I roll closing costs into the new loan?
Financing costs avoids cash at closing but increases the balance and the payment, and you pay interest on those costs. Include the higher balance when you calculate the new payment.
Does a lower payment always mean the refinance saves money?
No. If the lower payment comes from extending the term, total interest over the life of the loan can rise even as the monthly payment falls.