Mortgage Refinance Break-Even Calculator
Refinancing can save hundreds of dollars per month - but it costs money upfront in closing costs and points. The break-even analysis answers the only question that matters: how many months until the monthly savings repay the refinancing costs? If you plan to stay in the home beyond the break-even point, refinancing is almost certainly worth it. If you plan to sell or move before then, it probably is not. This calculator gives you the break-even month, monthly savings, and total lifetime interest savings so you can make the decision with confidence.
Your current loan
New refinanced loan
Typical: 2-5% of loan
Discount points to buy down the rate
How to use this tool
- 1Enter your remaining loan balance - check your most recent mortgage statement for the exact figure.
- 2Enter your current interest rate and how many years remain on your current loan.
- 3Enter the new interest rate you have been quoted and the new loan term (30 years is most common for a rate-and-term refinance).
- 4Enter the closing costs in dollars - get this from the Loan Estimate your lender provides. Typically 2-5% of the loan amount.
- 5Enter discount points if any - each point is 1% of the loan amount paid upfront to buy down the rate.
- 6Read the break-even months. Under 24 months is generally a strong case for refinancing; over 48 months requires careful consideration of how long you plan to stay.
Formula used
Example
Balance: 280,000. Current rate: 7.5%, 25 years remaining. New rate: 6.0%, 30-year term. Closing costs: 6,000. Points: 0. Current monthly: 2,062. New monthly: 1,679. Monthly savings: 383. Break-even: 6,000 / 383 = 16 months. Total interest savings over the new loan period: approximately 41,000. Clear case for refinancing if you plan to stay over 16 months.
Balance: 280,000. Current: 7.5%, 25 years. New: 6.5%, 30-year. Closing: 7,000. Monthly savings: 7,000 / 171 savings = 41 months break-even. If planning to sell in 3 years, refinancing costs more in fees than it saves in payments.
Common use cases
- Homeowners who took out a mortgage at a high rate and rates have since dropped, deciding whether to refinance now
- Borrowers comparing multiple lender offers with different rate/closing-cost combinations
- Homeowners who plan to sell in a few years checking whether the break-even period makes refinancing worthwhile
- Investors with rental properties evaluating whether refinancing frees up cash flow
- Buyers who took a short-term ARM considering refinancing to a fixed rate before the adjustment period
Common mistakes
- Comparing the new monthly payment without accounting for the new loan term - refinancing to a new 30-year term restarts the amortisation clock; total interest paid over the full new term can be higher even at a lower rate.
- Ignoring the break-even period entirely - the monthly savings look attractive, but if you move in 2 years and the break-even is 3 years, you lose money on the refinance.
- Not including all lender fees in the closing costs - the Loan Estimate from your lender lists every fee; use the total, not just the lender origination fee.
- Refinancing too frequently - each refinance restarts your amortisation and costs closing fees; multiple refinances within a few years often cost more than they save.
Frequently asked questions
When does refinancing make sense?
Refinancing typically makes sense when the new rate is at least 0.5-1% lower than your current rate, you plan to stay in the home long enough to reach the break-even point, and you have enough equity to avoid PMI on the new loan. The break-even month is the key number: if it is under 24 months, refinancing is almost always worth it.
What are mortgage points?
Discount points are upfront fees paid to the lender to reduce your interest rate. One point equals 1% of the loan amount. Paying one point on a 280,000 loan costs 2,800. Each point typically reduces the rate by 0.25%, though the relationship varies by lender and market conditions. Points make sense if your break-even period is short enough that the rate savings exceed the point cost.
Should I refinance to a new 30-year loan or a shorter term?
Refinancing to a new 30-year loan maximises monthly savings but extends your total repayment timeline. Refinancing to 20 or 15 years keeps your timeline on track and reduces total interest paid, but monthly payments may be higher. Use this calculator to compare: run it with a 30-year term, then a 15-year term, and compare the break-even months and lifetime interest savings.
Why does the calculator show negative savings?
If the new interest rate results in a higher monthly payment than your current loan, refinancing would increase your costs rather than reduce them. This happens when you refinance to a significantly lower rate but also extend the term substantially - or when refinancing costs are rolled into a larger new loan amount. The calculator shows this as a 'no savings' scenario.
Does the calculator include the tax deductibility of mortgage interest?
No. The tax treatment of mortgage interest varies by country, income level, and whether you itemise deductions. In the US, only about 14% of taxpayers itemise, and the mortgage interest deduction is capped. Consult a tax adviser if the deductibility of interest is a significant factor in your decision.
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