Calculate exactly how many months it will take for your refinance savings to cover your closing costs.
How to Use the Refinance Break-Even Calculator
Refinancing a mortgage can save you thousands of dollars in interest over the life of your loan, but it isn't free. Lenders typically charge between 2% and 5% of the loan amount in closing costs. This calculator helps you determine if the upfront cost is worth the long-term savings.
The Break-Even Formula
The "Break-Even Point" is the moment when the amount you've saved on your monthly payments equals the amount you paid to secure the new loan. The formula is:
Break-Even Months = Total Closing Costs / (Current Monthly Payment – New Monthly Payment)
Example Calculation
Let's say your current monthly Principal and Interest (P&I) payment is $2,000. You refinance into a lower rate, and your new payment is $1,750. Your monthly savings is $250. If your closing costs are $5,000, the math looks like this:
$5,000 (Costs) / $250 (Savings) = 20 Months
In this scenario, if you plan to stay in your home for more than 20 months, refinancing is a financially sound decision.
Important Factors to Consider
While the break-even point is critical, don't forget these other factors:
Loan Term Reset: If you are 5 years into a 30-year mortgage and refinance into a new 30-year loan, you are extending your debt by 5 years. This might lower your monthly payment but could increase the total interest paid over the life of the loan.
Cash-Out Refinance: If you are taking cash out for home improvements, your primary goal might be liquidity rather than a monthly savings break-even point.
Opportunity Cost: Consider what that $5,000 in closing costs could earn if invested elsewhere instead of being paid to a lender.
function calculateRefi() {
var currentPayment = parseFloat(document.getElementById('currentPayment').value);
var newPayment = parseFloat(document.getElementById('newPayment').value);
var refiCosts = parseFloat(document.getElementById('refiCosts').value);
var resultDiv = document.getElementById('refiResult');
if (isNaN(currentPayment) || isNaN(newPayment) || isNaN(refiCosts) || currentPayment <= 0 || newPayment <= 0 || refiCosts <= 0) {
resultDiv.style.display = 'block';
resultDiv.style.backgroundColor = '#f8d7da';
resultDiv.style.color = '#721c24';
resultDiv.innerHTML = 'Error: Please enter valid positive numbers for all fields.';
return;
}
if (newPayment >= currentPayment) {
resultDiv.style.display = 'block';
resultDiv.style.backgroundColor = '#fff3cd';
resultDiv.style.color = '#856404';
resultDiv.innerHTML = 'Warning: Your new payment is higher than or equal to your current payment. You will not reach a break-even point through monthly savings.';
return;
}
var monthlySavings = currentPayment – newPayment;
var monthsToBreakEven = refiCosts / monthlySavings;
var yearsToBreakEven = (monthsToBreakEven / 12).toFixed(1);
// Formatting currency
var formattedSavings = monthlySavings.toLocaleString('en-US', { style: 'currency', currency: 'USD' });
resultDiv.style.display = 'block';
resultDiv.style.backgroundColor = '#d4edda';
resultDiv.style.color = '#155724';
resultDiv.innerHTML = '
Your Break-Even Point:
' +
'' + Math.ceil(monthsToBreakEven) + ' Months' +
'That is approximately ' + yearsToBreakEven + ' years.' +
'By refinancing, you will save ' + formattedSavings + ' per month. If you stay in your home longer than ' + Math.ceil(monthsToBreakEven) + ' months, the refinance pays for itself!';
}