Mortgage Refinance Break-even
Find the months-to-break-even after a refinance and total lifetime savings.
Overview
A mortgage refinance break-even calculator answers the single most important question about a rate-and-term refinance: how many months of lower payments do I need before the savings cover the closing costs? Closing costs on a US refinance commonly run 2%–5% of the loan amount and include lender origination fees, appraisal, title insurance, recording, and pre-paid escrow items. Until those costs are recouped, the refinance is technically a net cost.
The break-even period works alongside total lifetime savings to evaluate whether refinancing makes sense. A short break-even (under 24 months) with a long expected holding period is usually a clear win. A long break-even on a house the borrower is likely to sell soon is usually a clear loss. The calculator also surfaces the cumulative interest difference over the full term — which can be hundreds of thousands of dollars on a 30-year mortgage even when the monthly savings look modest.
How it works
Compute the old monthly payment from the original principal, original rate, and original term. Compute the new payment from the remaining principal, new rate, and new term (the term resets in most refinances). Monthly savings = old_payment − new_payment. Break-even months = closing_costs / monthly_savings. Total interest paid over the full loan equals (monthly_payment × n_months) − principal; subtract the new loan's interest from the old loan's remaining interest to get lifetime savings. The calculation deliberately uses pre-tax dollars; mortgage interest deductibility varies by jurisdiction and standard-deduction usage.
Examples
- $300,000 remaining at 7.0% with 28 years left, refinancing to 5.5% on a new 30-year, $6,000 closing costs: old payment $2,021, new payment $1,703, savings $318/month. Break-even ≈ 19 months. Lifetime interest savings: about $73,000 (accounting for the 2-year term extension).
- $500,000 at 6.5% with 25 years left, refinancing to 6.0% on a 25-year, $9,000 closing costs: savings ~$167/month, break-even ≈ 54 months — only worth it if staying at least 5 more years.
- $200,000 at 4.0% refinancing to 3.5% with $4,500 closing costs: $54/month savings, break-even 83 months — usually not worth it on a typical 7-year holding period.
- Cash-out refinance that raises the balance: payment may rise even at a lower rate; "break-even" then has to compare the rate on cashed-out equity against alternatives.
FAQ
Should I roll closing costs into the loan?
You can, but it inflates the principal and extends the break-even period. The math still works, but the wallet check is different.
Does resetting to a new 30-year erase my progress?
Yes — re-amortizing pushes more of each early payment toward interest again. Consider a 15- or 20-year term if you have made significant principal progress.
What is a no-cost refinance?
A loan with a slightly higher rate where the lender credits the closing costs. Break-even is immediate but lifetime savings are smaller.
Does refinancing hurt my credit score?
Briefly. A hard inquiry and a new account drop the score a few points, recovering over months.
Is the 1% rule (refinance only if 1% lower) still valid?
Not strictly. With current closing costs and balances, break-even math matters more than a fixed rate-drop heuristic.