Mortgage Refinance Break-Even Calculator
Find out how many months it takes to recoup your refinancing closing costs through lower monthly payments. Use this when comparing mortgage rates to decide if refinancing makes financial sense.
About this calculator
When you refinance, you replace your existing mortgage with a new one at a lower interest rate, but you pay closing costs upfront. The break-even point is the number of months until your cumulative monthly savings equal those closing costs. Each monthly payment is calculated using the standard amortization formula: M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1], where P is the loan balance, r is the monthly interest rate, and n is the number of remaining monthly payments. The monthly savings equal the old payment minus the new payment (M1 − M2). Break-even months = Closing Costs ÷ (M1 − M2). If the new rate is not lower than the current rate, there are no savings and refinancing does not make sense. The shorter your break-even period relative to how long you plan to stay in the home, the more beneficial the refinance.
How to use
Suppose you have a $300,000 balance at 7.0% with 25 years remaining, and you can refinance to 6.0% with $5,000 in closing costs. Old monthly payment: M1 = 300,000 × [0.005833 × (1.005833)³⁰⁰] / [(1.005833)³⁰⁰ − 1] ≈ $2,120. New monthly payment: M2 = 300,000 × [0.005 × (1.005)³⁰⁰] / [(1.005)³⁰⁰ − 1] ≈ $1,933. Monthly savings = $2,120 − $1,933 = $187. Break-even = $5,000 ÷ $187 ≈ 27 months. If you plan to stay longer than 27 months, the refinance saves you money.
Frequently asked questions
How long does it typically take to break even on a mortgage refinance?
The average refinance break-even period is between 24 and 48 months, depending on the size of the rate reduction and closing costs. A larger rate drop produces bigger monthly savings and shortens the break-even timeline. Most financial advisors suggest refinancing only if you plan to stay in the home at least 2–3 years beyond the break-even point to capture meaningful savings.
What costs are included in mortgage refinancing closing costs?
Refinancing closing costs typically include lender origination fees, appraisal fees, title insurance, title search fees, attorney fees, and prepaid items like homeowners insurance and property taxes. Total closing costs usually range from 2% to 5% of the loan balance. Some lenders offer no-closing-cost refinances, but they typically offset these by charging a slightly higher interest rate, which extends the break-even period.
When does refinancing a mortgage not make financial sense?
Refinancing does not make sense if your new interest rate is not meaningfully lower than your current rate, typically less than a 0.5–1.0 percentage point difference. It also lacks value if you plan to sell or pay off the home before reaching the break-even point. Additionally, if you reset your loan term to 30 years on an already-mature mortgage, you may pay more total interest even with a lower rate, since most early payments go toward interest.