Refinance Break-Even Calculator
Find out how many months it takes for a mortgage refinance to pay back its closing costs.
How the Refinance Break-Even Calculator Works
A refinance replaces your mortgage with a new one, ideally at a lower rate or shorter term. The catch is closing costs. This calculator compares your current principal-and-interest payment with the new one and shows the break-even point: the number of months of savings needed to recover the costs.
When Does Refinancing Make Sense?
It generally makes sense when you can lower your rate meaningfully, plan to stay in the home past the break-even point, and are not simply restarting a long term that raises lifetime interest. See how refinancing works.
Example: Dropping From 7.25% to 6.25%
On a $280,000 balance with 27 years left at 7.25%, refinancing into a new 30-year loan at 6.25% with $5,500 of closing costs lowers the payment by roughly $250 a month. Break-even is about 22 months, so if you plan to stay longer than two years the refinance pays for itself. The catch: resetting to 30 years adds extra years of interest, which you can offset by paying the old payment amount.
How to Read Your Results
Monthly savings compare principal and interest only. Break-even shows months until costs are recovered. The lifetime interest lines reveal whether a lower payment comes with a longer, more expensive loan.
Refinance Checklist
- Get quotes from at least three lenders.
- Compare Loan Estimates line by line.
- Confirm you will stay beyond the break-even point.
- Ask whether extra payments are penalized.
How the Break-Even Calculation Works
The calculator computes the principal-and-interest payment on your current loan using your remaining balance, current rate and remaining years, then computes the payment on the new loan with the new rate and term. The monthly savings equal the old payment minus the new one. Break-even months equal the closing costs divided by the monthly savings. It also compares the total interest you would pay over each loan's remaining life, so you can see whether a lower payment is offset by extra years of interest. It does not include taxes, insurance or escrow, which stay similar under both loans.
Refinance Scenarios
Below are examples using a $280,000 balance, comparing the current loan with 27 years remaining against a new 30-year loan:
| Old rate | New rate | Closing costs | Old payment | New payment (30 yr) | Monthly savings | Break-even |
|---|---|---|---|---|---|---|
| 7% | 6.5% | $4,500 | $1,926 | $1,770 | $156 | 29 months |
| 7% | 6% | $5,000 | $1,926 | $1,679 | $247 | 21 months |
| 7.5% | 6% | $6,000 | $2,018 | $1,679 | $339 | 18 months |
| 6.75% | 6% | $5,500 | $1,880 | $1,679 | $202 | 28 months |
Notice that in some cases the payment savings are modest and break-even takes longer than you plan to stay. Also look at the loan term: resetting to 30 years can raise total interest even when the rate drops. Ask lenders for a shorter term or make extra payments to offset that.
Step-by-Step: Decide Whether to Refinance
- Find your current loan balance, rate and remaining term on your statement.
- Get Loan Estimates from at least three lenders on the same day to compare rates fairly.
- Enter the new rate, new term and total closing costs, including points.
- Look at the monthly savings and break-even months.
- Compare break-even to how long you plan to stay in the home.
- Compare total interest on both loans.
- If the numbers work, ask about a rate lock and no-closing-cost alternatives.
Costs to Include in the Calculation
Typical refinance costs include lender origination fees, appraisal, title search and insurance, credit report, recording fees and prepaid items such as interest and escrow deposits. Some lenders offer a no-closing-cost refinance in exchange for a higher rate, which may make sense if you expect to move soon. Compare offers by total cost, not only rate. Learn more in closing costs explained.
Types of Refinances
- Rate-and-term refinance: changes the rate, term or both without taking cash out.
- Cash-out refinance: borrows more than you owe and gives you the difference in cash, raising your balance and payment.
- Cash-in refinance: you pay down the loan at closing to reach a better rate or remove mortgage insurance.
- Streamline refinances: simplified programs for FHA, VA and USDA loans.
For more information, read how to refinance a mortgage.
Refinance vs Other Options
If rates are not low enough, other strategies may save money: make extra principal payments (see how to pay off your mortgage early), recast your loan, remove PMI (see PMI explained) or use a HELOC for a specific need (see HELOC vs home equity loan). Estimate your current payment with the mortgage payment calculator.
Worked Example: Break-Even in Detail
Suppose you owe $280,000 at 7.25% with 27 years left and are offered a new 30-year loan at 6.25% with $5,500 in closing costs. Your current principal-and-interest payment is about $1,972, and the new payment is about $1,724, a savings of about $248 a month, so break-even is about 22 months. The catch is total interest: because the new loan runs three years longer, you would pay more interest over the life of the loan than if you kept your current loan with the same payment. If you kept paying $1,972 on the new loan, you could shorten the term to roughly 22 years and save a large amount of interest. Use the calculator to compare the numbers for your situation.
Understanding Each Input and Result
- Current loan balance: what you owe now, from your latest statement.
- Current interest rate: the rate on your existing loan.
- Years remaining: the time left on your current loan, not the original term.
- New interest rate and term: from lender quotes.
- Closing costs: all fees to refinance, including points if you are buying them.
The results show monthly savings, the current and new payments, the break-even point in months and lifetime interest for each loan. A positive change in lifetime interest means the new loan costs more in total even if the payment is lower.
Situations Where Refinancing Rarely Makes Sense
- You expect to move or sell before the break-even point.
- The rate reduction is small compared with closing costs.
- You would extend the term significantly without a plan to pay extra.
- Your credit or equity has weakened since you took the original loan.
- You are near the end of the loan and mostly paying principal.
If any of these apply, consider extra principal payments instead. See how to pay off your mortgage early.
Refinance Checklist: Documents and Timeline
- Week 1: collect your last two pay stubs, two years of tax returns and W-2s (see how to read a W-2), two months of bank statements and your current mortgage statement.
- Week 1 to 2: request Loan Estimates from at least three lenders on the same day and compare rate, APR and fees.
- Week 2: choose a lender, lock your rate and submit the application.
- Weeks 3 to 5: the lender orders an appraisal, underwrites your file and may request additional documents.
- Week 5 to 6: review your Closing Disclosure at least three business days before closing and compare it with the Loan Estimate.
- Closing: sign documents; for a primary residence refinance, you generally have a three-day right of rescission before funds are disbursed.
Refinance Break-Even results at a glance
These are the calculator's results at different values of current Loan Balance, with every other input left at the example values above (the bold row is the example). Use them to see how quickly the result changes before entering your own numbers.
| Current Loan Balance | Monthly Savings | Current payment (P&I) | New payment (P&I) |
|---|---|---|---|
| $140,000 | $123.87 | $985.87 | $862.00 |
| $210,000 | $185.80 | $1,478.81 | $1,293.01 |
| $280,000 | $247.74 | $1,971.74 | $1,724.01 |
| $350,000 | $309.67 | $2,464.68 | $2,155.01 |
| $420,000 | $371.60 | $2,957.61 | $2,586.01 |
| $560,000 | $495.47 | $3,943.49 | $3,448.02 |
| $840,000 | $743.21 | $5,915.23 | $5,172.02 |
What changing current Interest Rate does
Holding everything else at the example values, here is the effect of current Interest Rate:
| Current Interest Rate | Monthly Savings | Current payment (P&I) | New payment (P&I) |
|---|---|---|---|
| 3.6% | $-371.62 | $1,352.39 | $1,724.01 |
| 7.25% | $247.74 | $1,971.74 | $1,724.01 |
| 11% | $983.45 | $2,707.46 | $1,724.01 |
| 15% | $1,839.66 | $3,563.67 | $1,724.01 |
Break-even at different savings levels
| Closing costs | $100/month saved | $200/month saved | $300/month saved |
|---|---|---|---|
| $3,000 | 30 months | 15 months | 10 months |
| $5,000 | 50 months | 25 months | 17 months |
| $8,000 | 80 months | 40 months | 27 months |
If you expect to move or refinance again before the break-even month, the refinance probably costs more than it saves.
Costs people forget to include
- Appraisal and credit report fees
- Title search and lender's title insurance
- Recording fees and, in some states, mortgage taxes
- Points paid to lower the rate
- Prepaid interest and a new escrow deposit (often refunded from the old escrow account later)
Use the total from section A to J of your Loan Estimate, excluding the escrow deposit that you will largely get back.
Common Questions
What is a break-even point?
It is the time it takes for monthly savings to add up to the closing costs you paid.
Should I roll closing costs into the loan?
That avoids upfront cash but increases the loan balance and interest. Compare both options.
Should I refinance if I plan to move soon?
Only if the break-even point comes before your expected move date.
Can I refinance with less than 20% equity?
Often yes, but you may pay mortgage insurance; some programs have special options.
How much lower should the rate be to refinance?
There is no fixed rule. Many homeowners look at a reduction of about half to one percentage point, but the break-even analysis is more reliable.
Does refinancing hurt my credit score?
It can cause a small temporary dip from the hard inquiry and new account, but the impact is usually minor.
Can I refinance if I have less than 20% equity?
Often yes, but you may pay mortgage insurance or need certain programs.
What if I plan to move in three years?
Choose an option where break-even is well under three years or consider a no-closing-cost loan.
What is the difference between break-even and payback period?
They mean the same thing here: the time for monthly savings to cover closing costs.
Does refinancing change my property taxes or insurance?
No, but your escrow account may be reset and your servicer may change.
Can I refinance if my home value has dropped?
It may be harder if you have little equity, but some programs allow refinancing with limited equity, and lenders can order an appraisal to determine current value. If you cannot refinance, consider making extra principal payments or asking your servicer about loan modification if you are struggling.
How does my credit score affect refinancing?
A higher score generally qualifies you for lower rates and fewer fees. If your score has improved since you took your original loan, that alone may make refinancing attractive. Check your reports and scores before applying so you can fix errors and avoid surprises.
Will my payment change if I refinance into a 15-year loan?
A 15-year loan usually has a lower rate but a higher monthly payment because you repay the balance faster. Use the calculator to see both the payment and the lifetime interest, and make sure the higher payment fits your budget with room for emergencies.
What is a rate lock and how long does it last?
A rate lock guarantees your quoted rate for a set period, commonly 30 to 60 days. If the lock expires before closing, you may need to pay for an extension or accept the current rate.
Should I include escrow in the monthly savings?
No. Compare principal and interest only; taxes and insurance stay about the same whichever loan you have.
Is a no-closing-cost refinance worth it?
It can be if you may move or refinance again soon, because you avoid upfront costs in exchange for a higher rate.
Does a shorter new loan term change the break-even?
Yes. A shorter term often raises the monthly payment, so compare total interest as well as monthly savings.
Can I refinance more than once?
Yes. There is no legal limit, but each refinance has its own costs and break-even period.
What is a good break-even period?
Many homeowners look for break-even within two to three years, comfortably shorter than the time they expect to keep the loan.
How to check this calculator
This calculator shows the tax year, assumptions, inputs, and worked examples used to explain the estimate. Where result tables are provided, you can enter the example values in the calculator and compare the output with the displayed example to reproduce the calculation.
Tax and payroll rules can change, and a calculator estimate is not the same as an employer payroll statement or filed tax return. For an important decision, compare the result with your pay stub and the relevant official IRS, Social Security Administration, Department of Labor, or state guidance. See our methodology and editorial approach for source and review information.
Results are estimates for education only and are not financial, tax or legal advice.