Mortgages guide
How to Calculate a Mortgage Refinance Break-Even Point
A simple refinance break-even estimate divides the refinance costs you pay by the monthly payment savings. If costs are $4,000 and the new loan lowers principal-and-interest by $200 per month, the simple break-even is 20 months. That shortcut is useful for screening an offer, but it ignores balance differences, a reset term, taxes, and the value of cash paid at closing.
Gather comparable loan figures
Request a written Loan Estimate for the refinance and use your current statement for the existing loan. Compare remaining balance, rate, remaining term, new term, monthly principal and interest, mortgage insurance, lender costs, credits, and cash to close. An advertised rate alone does not show whether the refinance lowers your total borrowing cost.
Calculate a first-pass break-even
Use net upfront refinance costs ÷ monthly payment savings = months to break even. If fees are $4,000 and the new principal-and-interest payment is $200 lower, $4,000 ÷ $200 = 20 months. Subtract lender credits only when they truly reduce costs you pay, and include any prepayment penalty or other cash expense that applies.
Compare the same time horizon
A new 30-year mortgage can reduce the monthly payment partly because it stretches repayment over more years. It may increase lifetime interest even with a lower rate. To compare fairly, examine remaining payments on the current loan against payments and costs for the new loan over the same expected ownership period, then consider the balance still owed at that point.
A simplified USD illustration
Suppose a borrower has 24 years left, pays $1,600 per month in principal and interest, and receives a new offer at $1,450 with $3,600 of costs. The simple ratio is 24 months. If the borrower expects to move in 18 months, the simple savings ($2,700) do not recover the $3,600 cost. This is only a screen: it ignores the principal balance paid under each schedule and other cost differences.
Include costs and goals beyond payment
Refinancing can change cash flow, loan duration, mortgage insurance, rate structure, or cash borrowed. Some costs may be added to the loan instead of paid at closing; they are still financed. Consider whether the goal is lower payment, faster payoff, a stable rate, or a different loan feature, and compare all relevant costs over the intended holding period.
Check the offer with documents
Use the Loan Estimate and Closing Disclosure to verify fees and projected payments, and ask the lender to explain any cost that changes. A calculator can compare entered principal, rate, term, and fees; it cannot determine eligibility, value a rate lock, or replace a full amortization comparison. If a $3,000 fee is financed into the new balance, it still accrues interest even though no separate check is written at closing.
| Net refinance costs | Monthly payment savings | Simple break-even |
|---|---|---|
| $2,400 | $100 | 24 months |
| $4,000 | $200 | 20 months |
Frequently asked questions
Is break-even just closing costs divided by monthly savings?
That is a first-pass estimate. A fuller comparison also considers the remaining balance, new loan term, credits, and how long you expect to keep the loan.
Does a lower payment mean refinancing saves money?
Not necessarily. A longer term can lower the payment while increasing total interest or extending repayment.
Sources and further reading
Try the calculator
Use the Loan Comparison Calculator to explore your own numbers with the assumptions shown in the tool.
Related guides
Educational content only; not individualized financial, tax, or legal advice.