Mortgage
Should I Refinance? How to Calculate Your Break-Even Point
A refinance calculator answers one key question: how long until the savings from a lower rate pay back what it costs to refinance? That moment is your break-even point. This guide shows the simple formula, a full example and how to test your own loan in the [Refinance Calculator](/calculators/refinance-calculator).
By the MoneyTools Editorial TeamLast updated 7 min readEditorial Policy
What a refinance calculator measures
Refinancing means replacing your current mortgage with a new one, usually to get a lower interest rate or a different term. The new loan comes with closing costs — lender fees, appraisal, title and recording charges — often a few thousand dollars. A refinance calculator compares your old payment with the new one and tells you how long the monthly savings take to cover those costs.
- Monthly savings: old principal-and-interest payment minus new payment.
- Closing costs: everything you pay to get the new loan, whether paid upfront or added to the balance.
- Break-even point: the month when total savings equal total costs.
The refinance break-even formula
Break-even (months) = Closing costs ÷ Monthly savings
- Closing costs
- Total fees for the new loan
- Monthly savings
- Current payment − new payment (principal and interest)
Taxes and insurance usually stay the same after a refinance, so compare only the principal-and-interest part of each payment.
Worked example: $300,000 loan, 7% to 5.5%
Worked example
Refinance break-even calculation
- Current loan: $300,000 at 7% for 30 years → payment ≈ $1,995.91
- New loan: $300,000 at 5.5% for 30 years → payment ≈ $1,703.37
- Monthly savings: $1,995.91 − $1,703.37 ≈ $292.54
- Closing costs: $4,500
- Break-even: $4,500 ÷ $292.54 ≈ 15.4 months
You recover the $4,500 cost in about 16 months. Every month after that is real savings.
To keep the math simple this example refinances the full $300,000 into a new 30-year loan. In real life your balance will be lower after some years of payments. Rates here are examples, not current market rates.
5-year net gain table
| Year | Total savings | Closing costs | Net gain |
|---|---|---|---|
| 1 | $3,510 | $4,500 | −$990 |
| 2 | $7,021 | $4,500 | $2,521 |
| 3 | $10,531 | $4,500 | $6,031 |
| 4 | $14,042 | $4,500 | $9,542 |
| 5 | $17,552 | $4,500 | $13,052 |
After one year you are still slightly behind. By year two you are ahead, and after five years the refinance has saved about $13,000 more than it cost.
When refinancing may not make sense
You plan to move soon
If you expect to sell within the break-even period, you pay the costs but never collect enough savings to cover them.
You restart a long term
Resetting to a new 30-year loan can lower your payment but add years of interest. Compare total interest, not just the monthly payment, in the Mortgage Calculator.
Costs are rolled into the loan
A "no-closing-cost" refinance usually means a higher rate or a bigger balance. The cost is still there, just spread out.
How to use the refinance calculator
- Enter your current balance, rate and remaining term.
- Enter the new rate, term and closing costs from your lender's Loan Estimate.
- Check the break-even months and the lifetime interest difference.
- Compare that with how long you expect to keep the home.
Run your own numbers
Find out whether refinancing your mortgage could save you money.
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