Calculate exactly how many months it will take for your monthly savings to offset the costs of refinancing your mortgage.
Understanding Your Refinance Break-Even Point
Deciding whether to refinance your mortgage involves more than just looking at a lower interest rate. The break-even point is the most critical metric in this decision. It represents the specific month where your accumulated monthly savings finally exceed the upfront costs you paid to secure the new loan.
The Formula We Use
The calculation is straightforward but vital for financial planning:
Break-Even (Months) = Total Closing Costs / (Current Monthly Payment – New Monthly Payment)
Example Scenario
Imagine your current monthly principal and interest (P&I) payment is $1,800. You are offered a new rate that drops your payment to $1,550. This creates a monthly savings of $250. If the closing costs for this refinance are $5,000, your break-even point is 20 months ($5,000 / $250).
If you plan to stay in your home for more than 20 months, the refinance makes financial sense. If you plan to sell in a year, you would actually lose money by refinancing.
Key Factors to Consider
Closing Costs: These typically include appraisal fees, title insurance, origination fees, and credit report fees (usually 2% to 5% of the loan amount).
Loan Term: If you reset a 30-year mortgage back to a new 30-year term, you might pay more interest over the life of the loan even if your monthly payment is lower.
Taxes and Insurance: Since property taxes and homeowners insurance usually stay the same regardless of the lender, our calculator focuses on the Principal and Interest (P&I) to ensure accuracy.
function calculateRefiBreakEven() {
var currentP = parseFloat(document.getElementById("currentPayment").value);
var newP = parseFloat(document.getElementById("newPayment").value);
var costs = parseFloat(document.getElementById("closingCosts").value);
var resultDiv = document.getElementById("refiResult");
var resultText = document.getElementById("resultText");
var subResultText = document.getElementById("subResultText");
if (isNaN(currentP) || isNaN(newP) || isNaN(costs) || currentP <= 0 || newP <= 0 || costs < 0) {
resultDiv.style.display = "block";
resultDiv.style.backgroundColor = "#fce8e6";
resultText.style.color = "#d93025";
resultText.innerHTML = "Please enter valid positive numbers for all fields.";
subResultText.innerHTML = "";
return;
}
var monthlySavings = currentP – newP;
if (monthlySavings <= 0) {
resultDiv.style.display = "block";
resultDiv.style.backgroundColor = "#fce8e6";
resultText.style.color = "#d93025";
resultText.innerHTML = "No Monthly Savings Detected";
subResultText.innerHTML = "Your new payment must be lower than your current payment to reach a break-even point.";
return;
}
var months = costs / monthlySavings;
var years = months / 12;
resultDiv.style.display = "block";
resultDiv.style.backgroundColor = "#e6f4ea";
resultText.style.color = "#137333";
var monthsFixed = months.toFixed(1);
var yearsFixed = years.toFixed(1);
resultText.innerHTML = "Break-Even Point: " + monthsFixed + " Months";
subResultText.innerHTML = "You will save $" + monthlySavings.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}) + " per month. It will take approximately " + yearsFixed + " years to recover your closing costs.";
}