Refinance Break-Even Calculator
Calculate how long it takes to break even on mortgage refinancing costs with a lower interest rate.
How to use this tool
- Enter current monthly payment, new monthly payment and closing costs in the fields above.
- Results update instantly as you type — or click Calculate.
- Read your break-even period and the full breakdown beneath it.
Refinancing only makes sense if you plan to stay long enough to recoup the closing costs through lower payments.
⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.
Formula
Monthly Savings = Current Monthly Payment − New Monthly Payment
Break-Even Months = ⌈Closing Costs ÷ Monthly Savings⌉ (rounded up to the next whole month)
Break-Even Years = Break-Even Months ÷ 12
How it works
The refinance break-even point is the number of months needed for cumulative monthly payment savings to recoup the upfront closing costs of the new loan. It is calculated by dividing total closing costs by the reduction in monthly payment and rounding up to the nearest whole month. If your new payment is not lower than the current payment the calculator returns no break-even (infinite), because costs can never be recovered. This model ignores the changing loan balances under each scenario and any opportunity cost of the closing cost cash outlay — more precise analyses would discount future savings.
Worked example
- Current payment: $1,500/mo. New payment: $1,300/mo. Closing costs: $3,000.
- Monthly savings = $1,500 − $1,300 = $200.
- Break-even months = ⌈$3,000 ÷ $200⌉ = ⌈15⌉ = 15 months.
- Break-even years = 15 ÷ 12 = 1.25 years.
Monthly savings: $200 | Break-even: 15 months (1.25 years)
Common mistakes to avoid
- Omitting prepaid interest and escrow setup from closing costs, understating the true break-even period by several months.
- Comparing the new monthly payment to the remaining payment on the old loan rather than recalculating the old payment at its original term, which distorts the monthly savings figure.
- Ignoring the remaining term: if the break-even point is 36 months but only 30 months remain on the old loan, refinancing never saves money regardless of the monthly savings.
Key terms
- Refinancing
- Replacing an existing loan with a new loan — typically to obtain a lower interest rate, reduce monthly payments, or change the loan term.
- Closing costs
- Fees and expenses paid to complete a mortgage transaction, including origination fees, title insurance, appraisal, and other charges; commonly 2–5% of the loan amount.
- Break-even point
- The month at which cumulative savings from a lower monthly payment equal the upfront closing costs paid to refinance.
- Rate-and-term refinance
- A refinance that changes only the interest rate and/or loan term without extracting equity from the property.
- Cash-out refinance
- A refinance where the new loan is larger than the existing balance, allowing the borrower to receive the difference as cash; closing costs are higher and the break-even period is longer.
Frequently asked questions
- What is the refinance break-even point?
- The break-even point is when your cumulative savings from the lower monthly payment equal the upfront closing costs you paid to refinance.
- What if I plan to sell before the break-even?
- If you'll move before break-even, refinancing costs you money. Consider a no-closing-cost refinance (usually a slightly higher rate) if you're uncertain about staying.