Mortgage Refinance Break-even Calculator
Use our free refinance break-even calculator to find out how long it will take to recover refinancing costs and when you'll start saving money. This comprehensive tool helps homeowners compare current and new loan terms to see the true benefit of refinancing your mortgage.
Whether you're considering mortgage refinancing to lower your monthly payment, shorten your loan term, or tap into home equity, our refinance break-even calculator provides the detailed analysis you need to make an informed decision about your home loan.
All calculations are done in your browser. We don't store your data.
What is a refinance break-even point?
The refinance break-even point is when your monthly savings from refinancing equal the total closing costs you paid to refinance. After this point, you start truly saving money. For example, if you pay $8,000 in closing costs and save $200 per month, your break-even point would be 40 months (8,000 ÷ 200).
When should you refinance a mortgage?
You should refinance when interest rates drop significantly, you can lower your monthly payment, or you need to change your loan term. Generally, a 1-2% rate drop makes refinancing worthwhile, but also consider how long you plan to stay in the home and your financial goals. Use our refinance calculator to analyze your specific situation.
How much should rates drop before refinancing makes sense?
Most experts recommend refinancing when you can get a rate at least 1% lower than your current rate. However, even smaller drops can make sense if you plan to stay in your home long-term. The key is calculating your break-even point - if you'll stay in the home past that point, refinancing is typically worth it.
What closing costs should I expect when refinancing?
Refinance closing costs typically range from 2% to 5% of the loan amount and include appraisal fees, title insurance, origination fees, and attorney fees. Some lenders offer "no-closing-cost" refinances, but these usually come with higher interest rates. Always compare the total cost over time rather than just focusing on closing costs.
Is refinancing worth it if I plan to move soon?
If you plan to move before reaching your break-even point, refinancing probably isn't worth it. For example, if your break-even point is 3 years but you're planning to move in 2 years, you won't recoup your closing costs. However, if you need to lower your monthly payment immediately for cash flow reasons, it might still make sense despite the short timeline.
How to Calculate Break-even Point on a Refinance
Calculating your refinance break-even point is crucial for determining if refinancing makes financial sense. The formula is straightforward: divide your total closing costs by your monthly savings.
Break-even Formula:
Break-even Point = Total Closing Costs ÷ Monthly Payment Savings
For example, if your closing costs are $6,000 and you'll save $150 per month, your break-even point would be 40 months. After 40 months of payments, you'll have recouped your closing costs and will begin realizing true savings.
Our mortgage refinance calculator automates this calculation and provides additional insights like total interest savings and long-term financial impact, helping you make the most informed decision about your home loan.
Factors That Affect Your Refinance Savings
Interest Rate Difference
The larger the rate reduction, the more you'll save monthly. Even a 0.5% reduction can result in significant savings over the life of your loan, especially for larger mortgage amounts.
Loan Term Changes
Shortening your loan term (e.g., from 30 to 15 years) increases monthly payments but dramatically reduces total interest. Extending the term lowers payments but may increase total interest paid.
Closing Costs
Higher closing costs extend your break-even point. Compare closing costs between lenders and consider whether paying points for a lower rate makes sense for your situation.
Your Time Horizon
The longer you plan to stay in your home past the break-even point, the more refinancing makes sense. If you might move soon, the savings may not justify the costs.
When Refinancing May Not Be Worth It
Small Rate Difference
If the new rate is only slightly lower (less than 0.5%), the monthly savings may not justify the closing costs unless you plan to stay in the home for many years.
Near Loan Payoff
If you're close to paying off your current mortgage (less than 5-7 years remaining), refinancing may not be beneficial as you're already paying mostly principal.
Poor Credit Score
If your credit has declined since your original mortgage, you might not qualify for better rates and could end up with higher monthly payments.
Planning to Move Soon
If you'll move before reaching your break-even point, you won't recoup the closing costs, making refinancing financially unwise despite potential monthly savings.