Refinance Break-Even Calculator

Break-Even Timeline

Understanding Refinance Break-Even

Refinancing replaces your current loan with a new one—ideally at a lower interest rate or better terms. Because refinancing has closing costs, you should know your break‑even point: how many months it takes for the lower monthly payment to recoup those costs.

Enter your current balance, rate, and remaining term, then model the new rate, term, and closing costs. The calculator shows break‑even months, monthly savings, and lifetime interest saved. If you won't keep the loan past the break‑even date, refinancing may not be worthwhile.

Compare paying extra on your current loan with the Extra Payment calculator to see which path provides more value for your situation.

Not worth it? If your break-even months exceed the time you plan to stay in the home, refinancing may not make financial sense. Consider alternatives like making extra payments on your current loan.

What Are Closing Costs?

Closing costs typically include:

• Loan Origination: 0.5% to 1% of loan amount
• Appraisal: $300 to $500
• Title Insurance: $500 to $1,000
• Escrow: Property taxes and insurance
• Recording Fees: $50 to $200
• Credit Report: $25 to $50

When Refinancing Makes Sense

• Rate Reduction: At least 0.5% lower than current rate
• Short Break-Even: Less than 24 months to recoup costs
• Long-Term Plans: Planning to stay in home past break-even
• Cash-Out Needs: Need equity for home improvements or debt consolidation
• Term Reduction: Can afford higher payments to pay off faster

Break-Even Calculation

Break-Even Months = Closing Costs ÷ Monthly Payment Savings

Example: $3,000 closing costs ÷ $150 monthly savings = 20 months to break even

Factors That Affect Break-Even

• Rate Difference: Larger rate drops mean faster break-even
• Loan Amount: Higher balances show bigger monthly savings
• Closing Costs: Lower costs mean faster break-even
• Loan Term: Shorter terms may increase monthly payments
• Points: Paying points reduces rate but increases costs

Alternative Strategies

• Rate and Term Refinance: Lower rate, same or shorter term
• Cash-Out Refinance: Access equity for other purposes
• Streamline Refinance: Simplified process for existing FHA/VA loans
• Extra Payments: Pay additional principal on current loan
• Recast: Lump sum payment to reduce monthly payment

Refinance break-even analysis

Refinancing can save money, but closing costs mean you need time to recoup the investment. This calculator shows your break‑even timeline by comparing current vs. new loan terms and costs.

Lower rates and longer terms reduce monthly payments but may increase total interest. Higher rates with shorter terms increase monthly payments but reduce total interest. The key is finding the sweet spot for your timeline and goals.

FAQs

What's a good break-even timeline?

Generally under 24 months. If you plan to move or refinance again soon, shorter is better.

Do points change the calculation?

Yes. Points are prepaid interest that reduce your rate but increase closing costs.

Should I refinance to a shorter term?

Only if you can afford higher payments. Shorter terms save interest but increase monthly costs.