Refinance break-even calculator

What break-even means

Refinancing replaces your mortgage with a new one at a lower rate - but it costs money up front in closing fees. The break-even point is the number of months of lower payments needed to recoup those costs. Stay past it and you come out ahead; move before it and the refinance may cost you. This calculator finds that month.

Worked example

A $400,000 balance with 30 years left, refinancing from 6.5% to 5.5% with $6,000 of closing costs:

• Current payment: about $2,528
• New payment: about $2,271
• Monthly saving: about $257
• Break-even: $6,000 ÷ $257 = about 24 months

So if you will keep the home (and the loan) longer than two years, the refinance pays for itself and then saves money every month after.

What to weigh

• How long you will stay. The single biggest factor - compare it to the break-even.
• Total interest, not just payment. A fresh 30-year term lowers the payment but can raise lifetime interest. Consider refinancing into a shorter term that matches your remaining years.
• Costs you can roll in. Some lenders fold closing costs into the balance, which changes the math - the calculator assumes you pay them separately.

Common mistakes

• Refinancing shortly before moving and never reaching break-even.
• Focusing on the lower payment while ignoring a longer term and more total interest.
• Forgetting that a cash-out refinance raises the balance and the payment.

If you have a lump sum instead, compare a mortgage recast; to decide between extra payments and investing, see the mortgage payoff vs invest calculator.