Mortgage Refinance Break-Even Calculator
Determine exactly how many months it will take for your monthly savings to offset the cost of refinancing your mortgage.
What is a Refinance Break-Even Point?
The refinance break-even point is the moment when the total amount you have saved from a lower monthly mortgage payment equals the costs you paid to get the new loan (closing costs). If you plan to sell your home or pay off your mortgage before reaching this point, refinancing might actually cost you more money than you save.
How to Calculate Your Break-Even Period
To find your break-even point manually, you follow a simple three-step process:
- Step 1: Subtract your new monthly payment from your current monthly payment to find your "Monthly Savings."
- Step 2: Determine your total closing costs (including appraisal fees, origination fees, and title insurance).
- Step 3: Divide the total closing costs by your monthly savings.
Current Payment: $2,200
New Payment: $1,900
Monthly Savings: $300
Closing Costs: $4,500
Calculation: $4,500 / $300 = 15 Months
Key Factors to Consider
While the math is straightforward, consider these variables before signing the paperwork:
1. Loan Term Reset: If you are 5 years into a 30-year mortgage and refinance into a new 30-year mortgage, you are extending your debt by 5 years. Even if the monthly payment is lower, you might pay more in total interest over the life of the loan.
2. Closing Costs Out-of-Pocket: Are you paying closing costs upfront, or are they being "rolled into the loan"? If they are rolled in, you will pay interest on those costs, which extends your break-even period further.
3. Opportunity Cost: If you take $5,000 out of savings to pay for a refinance, you are losing the potential investment returns that money could have earned elsewhere. Ensure the refinance savings significantly outweigh these potential gains.