Find out exactly when refinancing pays off — enter your current loan, new terms, and closing costs.
How to Use This Refinance Break-Even Calculator
Enter your current loan's remaining balance, interest rate, and months left. Then enter your new loan's proposed rate, term, and closing costs. The calculator instantly shows your break-even month — the point where cumulative monthly savings equal the upfront closing costs you paid.
The new loan amount defaults to your current balance, but you can override it if you're rolling in closing costs or doing a cash-out refinance. The month-by-month table shows exactly how savings accumulate over time.
Why This Matters
Refinancing isn't free — you pay thousands in closing costs upfront (typically 2–5% of the loan amount). A $300,000 refinance at 3% closing costs means $9,000 out of pocket before you save a single dollar. If your new rate saves you $200/month, you'd need 45 months (3.75 years) just to break even.
This is exactly why the break-even point matters. If you plan to sell or move in 2 years, paying $9,000 in closing costs to save $200/month makes no sense — you'd lose $4,200 overall. But if you're staying 10+ years, that same refinance saves you $15,000 after break-even.
The decision becomes more nuanced when you also change your loan term. Refinancing from a 30-year to a 15-year loan usually raises your monthly payment but cuts total interest dramatically. This tool handles all scenarios — lower rate same term, shorter term, and cash-out situations.
How It's Calculated
The monthly payment for each loan uses the standard amortization formula:
M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]
Where P = loan principal, r = monthly interest rate (annual ÷ 12), and n = number of monthly payments.
The monthly savings = Current Payment − New Payment. The break-even month = Closing Costs ÷ Monthly Savings (rounded up to the nearest month). Total interest for each loan is the sum of all interest portions across the full amortization schedule.
Break-Even Months = Closing Costs ÷ Monthly Payment Savings
Tips & Common Mistakes
- Don't ignore how long you'll stay. The break-even month is only meaningful if you plan to stay in the home past that point. Most experts recommend you need at least 2–3 years past break-even to make refinancing worth it.
- Watch out for extending your term. Refinancing a 20-year remaining mortgage back to 30 years lowers payments but dramatically increases total interest paid, even at a lower rate.
- Rolling closing costs into the loan. Adding closing costs to your loan balance avoids upfront cash but you'll pay interest on those costs for the life of the loan.
- The 1% rule is outdated. You've likely heard "refinance if rates drop 1%." That's a rough heuristic. Your actual break-even depends heavily on loan size, closing costs, and remaining term.
- Consider tax implications. Mortgage interest is deductible if you itemize. A lower rate means less deductible interest — factor this in for high-income borrowers.
Frequently Asked Questions
What are typical closing costs for a refinance?
Closing costs typically range from 2% to 5% of the loan amount. On a $250,000 loan, that's $5,000–$12,500. Common costs include loan origination fees (0.5–1%), appraisal ($300–$600), title insurance, and government recording fees. Some lenders offer "no-closing-cost" refinances that roll costs into the rate — you still pay, just differently.
Is a shorter break-even always better?
Generally yes, but it depends on your plans. A 12-month break-even is great if you're staying long-term, but if you're planning to sell in 18 months, even a short break-even period matters. The key question is always: how long do I plan to keep this loan?
Should I refinance if rates only dropped slightly?
It depends on your loan size and closing costs. A 0.5% rate drop on a $500,000 loan saves about $200/month — enough to justify $5,000 in closing costs in 25 months. On a $150,000 loan, the same rate drop saves ~$60/month, meaning a 7-year break-even. Run the numbers, don't use rules of thumb.
What if the new loan amount is different from my current balance?
This tool lets you enter a different new loan amount. You might do this if you're rolling closing costs into the loan (new amount = balance + closing costs), doing a cash-out refinance, or if your lender requires slight adjustments. Just enter the actual amount you'll be borrowing.