Mortgage Refinance Break-Even Calculator
Calculate exactly how many months it will take to recover your closing costs.
Refinance Analysis Results
Monthly Savings
$0.00
Break-Even Period
0 Months
Years to Break-Even
0 Years
What is a Mortgage Refinance Break-Even Point?
The mortgage refinance break-even point is the moment when the monthly savings generated by a lower interest rate finally exceed the upfront costs of the new loan. Refinancing isn't free; lenders charge for appraisals, credit checks, title insurance, and origination fees. This calculator helps you determine if you will stay in the home long enough to make the transaction profitable.
How the Calculation Works
To find your break-even point, we follow a specific mathematical process:
- Calculate Current Payment: We determine your current Principal and Interest (P&I) based on your remaining balance, current rate, and term.
- Calculate New Payment: We calculate the new P&I based on the same balance but with your new, lower interest rate.
- Determine Monthly Savings: Subtract the new payment from the old payment.
- The Break-Even Formula: Total Closing Costs / Monthly Savings = Months to Break Even.
Example Calculation
Imagine you have a $300,000 loan balance at 7% interest. Your current monthly P&I is roughly $1,996. You are offered a new rate of 6%, which drops your payment to $1,798.
- Monthly Savings: $1,996 – $1,798 = $198.
- Closing Costs: $5,000.
- Break-Even: $5,000 / $198 = 25.2 months.
In this scenario, if you plan to move in less than two years, refinancing would actually cost you money. If you stay for 5 or 10 years, you save thousands.
Factors to Consider Before Refinancing
While the math is straightforward, several factors can influence whether a refinance is "worth it":
- Loan Term Extension: If you are 5 years into a 30-year mortgage and refinance into a new 30-year mortgage, you are resetting the clock. You may pay more interest over the life of the loan even if your monthly payment is lower.
- Cash-Out Refinance: If you are taking equity out, your break-even point changes because your loan balance increases.
- Points: Paying "discount points" increases your upfront costs but lowers your rate further. This usually extends the break-even period but increases long-term savings.
Common Questions
What is a good break-even period? Most financial experts suggest that a break-even point of 24 months or less is excellent. Between 24 and 48 months is generally acceptable if you plan to keep the home long-term. Anything over 60 months (5 years) requires careful consideration.
Do closing costs include taxes? Usually, when calculating break-even, you focus on the "hard costs" (fees) rather than escrow pre-paids, as you would have paid those taxes and insurance anyway.