Understanding the Refinance Break-Even Calculator
Refinancing replaces your existing mortgage with a new one — usually to capture a lower rate or change your term — but it comes with closing costs. The break-even point is the number of months it takes for your monthly savings to recover those upfront costs. Knowing it tells you whether a refinance actually pays off given how long you plan to keep the home.
How break-even is calculated
Divide the total cost of refinancing by the amount you save each month. If refinancing costs $4,000 and lowers your payment by $200, you break even in 20 months. Stay in the home longer than that and you come out ahead; sell or refinance again sooner and you lose money on the deal. The shorter your break-even, the safer the refinance.
Watch the term reset trap
Refinancing into a fresh 30-year loan lowers your payment partly by stretching the term back out, which can increase total interest even at a lower rate. If your goal is to save money overall, compare lifetime interest, not just the monthly payment, and consider refinancing into a shorter term if you can afford it.
Tips & things to know
- •A lower rate alone is not enough — the savings must outrun the closing costs.
- •Ask whether closing costs are paid upfront or rolled into the new balance.
- •If you plan to move soon, a long break-even point may make refinancing a bad deal.