Determine exactly how many months it will take to recover the costs of your new loan.
What is a Refinance Break-Even Point?
The refinance break-even point is the moment when the monthly savings generated by a new mortgage interest rate finally exceed the upfront costs associated with closing the loan. Refinancing isn't free; you typically pay between 2% and 5% of the loan amount in appraisal fees, title insurance, and lender charges.
If you plan to sell the home or pay off the mortgage before reaching this break-even point, refinancing could actually cost you more money than you save.
Realistic Example:
Imagine your closing costs are $4,500. Your current mortgage payment is $2,100, and your new payment after refinancing would be $1,850.
In this scenario, if you stay in the home for more than 1.5 years, the refinance is financially beneficial.
Key Factors to Consider
Duration of Residency: The longer you plan to stay in the home, the more sense a refinance makes.
Loan Term: If you move from a 30-year to a 15-year mortgage, your payment might go up even if the rate is lower. In this case, focus on total interest saved over the life of the loan.
Cash-Out Refinancing: If you are taking cash out for renovations, the "break-even" calculation is different as you are increasing your total debt.
Closing Costs: Some lenders offer "no-cost" refinances, but these usually come with higher interest rates. Always compare the total cost over time.
How to Use This Calculator
To get an accurate result, enter your total estimated closing costs (found on your Loan Estimate form). Use only the Principal and Interest portions of your payments, as taxes and insurance (escrow) usually remain the same regardless of your interest rate.
function calculateRefiBreakEven() {
var closingCosts = parseFloat(document.getElementById('closingCosts').value);
var currentPayment = parseFloat(document.getElementById('currentPayment').value);
var newPayment = parseFloat(document.getElementById('newPayment').value);
var resultDiv = document.getElementById('refi-result');
// Validation
if (isNaN(closingCosts) || isNaN(currentPayment) || isNaN(newPayment)) {
resultDiv.style.display = 'block';
resultDiv.className = 'result-error';
resultDiv.innerHTML = 'Error: Please enter valid numbers for all fields.';
return;
}
if (closingCosts < 0 || currentPayment <= 0 || newPayment <= 0) {
resultDiv.style.display = 'block';
resultDiv.className = 'result-error';
resultDiv.innerHTML = 'Error: Please enter positive values.';
return;
}
var monthlySavings = currentPayment – newPayment;
if (monthlySavings <= 0) {
resultDiv.style.display = 'block';
resultDiv.className = 'result-error';
resultDiv.innerHTML = 'No Savings Detected: Your new payment is higher than or equal to your current payment. A refinance in this scenario will not have a break-even point based on monthly savings.';
return;
}
var breakEvenMonths = closingCosts / monthlySavings;
var breakEvenYears = (breakEvenMonths / 12).toFixed(2);
var roundedMonths = Math.ceil(breakEvenMonths);
resultDiv.style.display = 'block';
resultDiv.className = 'result-success';
resultDiv.innerHTML = 'Results:' +
'Your monthly savings: $' + monthlySavings.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}) + '' +
'Time to break even: ' + roundedMonths + ' months (approx. ' + breakEvenYears + ' years).' +
'If you stay in your home longer than ' + roundedMonths + ' months, this refinance is a mathematically sound decision.';
}