Refinance Break-Even Calculator

• Cash-flow break-even: how many months of lower payment recover what you paid at closing.
• Lifetime interest: whether the new loan actually costs less overall, including the upfront cost.
• A third scenario — refinance but keep paying the old amount — is often the strongest and is rarely presented.
• Points, cash-out, financed closing costs and a changed term are all modelled.

Two different questions, often confused

Question one: when do I get my closing costs back? If you pay $5,500 at closing and your payment falls by $250 a month, you are level after 22 months. Before that point, refinancing has cost you money. This is the cash-flow break-even, and it is the number most refinance calculators produce.

Question two: does this loan cost less than the one I have? That depends on the total interest still to be paid on each, plus the upfront cost. And here a longer term can reverse the answer entirely.

The two are computed like this:

Cash-flow break-even
  monthly saving    = current payment − new payment
  break-even month  = cash paid at closing ÷ monthly saving

Lifetime cost difference
  upfront cost      = closing costs + (points % × balance) + other fees
  new principal     = current balance + cash out + (financed costs, if any)
  difference        = interest remaining on the current loan
                      − interest on the new loan
                      − upfront cost paid in cash

A positive difference means the refinance costs less overall.
A negative one means the lower payment is being bought.

Suppose you have 27 years left on a $320,000 loan at 7.25%, and you refinance into a new 30-year loan at 6%. The payment drops from $2,240 to $1,919 — a saving of $321 a month, recovering $5,500 of closing costs in 18 months. That looks decisive.

But you have also reset the clock. The remaining interest on the old loan was about $405,000. The interest on the new 30-year loan is about $371,000, plus $5,500 of costs. The genuine saving is around $29,000, not the $321 × 324 months = $104,000 that the monthly figure suggests. Part of the lower payment is simply the same debt stretched over three more years.

The third scenario: refinance, then keep paying the old amount

This is the option that most often wins, and it almost never appears in a lender's presentation.

Take the lower rate, then continue paying what you were paying before. The difference — $321 a month in the example above — goes straight to principal every month.

Same rate, same closing costs, same monthly outgoing as today — and roughly $139,000 less interest than staying put, with the loan gone five years sooner. The only thing given up is the option to spend the $321, which you retain anyway since the required payment is lower. This scenario appears in the comparison table in your results.

Points, and when buying down the rate pays

A discount point costs 1% of the loan amount and buys a lower rate, typically around 0.25 percentage points per point, though the exchange rate varies by lender and by day.

Points are a break-even calculation of their own. On a $320,000 loan, one point costs $3,200. If it lowers the rate from 6.25% to 6.0%, the payment falls by about $53 a month, so the point pays for itself in roughly 60 months. Keep the loan longer than five years and the point was worth it; refinance or sell before then and it was not.

The key question is therefore the same one that governs the whole decision: how long will you actually keep this loan? Points reward certainty. If rates might fall further, or you might move, paying points is a bet against your own flexibility.

Enter points in the Advanced section and they are folded into the upfront cost, so the break-even month reflects them.

Cash-out refinancing changes the comparison

A cash-out refinance borrows more than you currently owe and gives you the difference. That is a different transaction from a rate-and-term refinance, and it deserves to be judged differently.

When you take cash out, the higher lifetime interest this calculator shows is partly the cost of the refinance and partly the cost of the new borrowing. Separating them matters: if you are borrowing $40,000 at 6% against the house to clear $40,000 of credit card debt at 23%, that is a large and genuine saving, and the fact that total mortgage interest rises is beside the point.

Two cautions, though. First, you are converting unsecured debt into debt secured by your home — the interest rate falls, but the consequence of not paying changes from a damaged credit file to a foreclosure risk. Second, spreading a $40,000 balance over 30 years at 6% costs about $46,000 in interest; the same balance cleared in four years at 6% costs about $5,000. A lower rate over a much longer term is not automatically cheaper.

When refinancing is not worth it

• You are likely to move before break-even. The single most common reason a refinance loses money.
• The rate difference is small. The old "refinance at 1% lower" rule of thumb is too crude — the right test is your own break-even month against how long you will stay — but on a small balance, a modest rate cut rarely covers fixed closing costs.
• You are well into the current loan. With eight years left on a 30-year loan, most of the interest has already been paid and the remaining balance amortizes quickly. Refinancing into a new 30-year term at that point usually raises lifetime cost substantially even at a much better rate. Refinancing into a 10 or 15-year term can still work.
• The costs are being rolled in and quietly financed for 30 years. A "no-cost" refinance is not free — the cost is either in the rate or in the balance. Model it with the costs financed and compare.
• You would restart PMI. If the new loan's loan-to-value exceeds 80%, mortgage insurance may return.

Common mistakes

Multiplying the monthly saving by the remaining months. This is the error that makes almost every refinance look better than it is. It ignores the term reset entirely.

Comparing the new payment against the old payment including escrow. Property tax and insurance do not change because you refinanced. Compare principal and interest against principal and interest.

Treating a skipped payment as a saving. Refinances often involve a month with no payment due, which feels like free money. It is not — the interest for that period is settled in the payoff figure and rolled into the new balance.

Judging on APR alone. APR spreads fees over the full term, which distorts the comparison when you will not keep the loan for the full term. Break-even is the more useful test.

Not shopping. Closing costs and rate offers vary meaningfully between lenders on identical borrowers. Getting three written loan estimates and comparing them line by line is the highest-return hour in this entire process.

Frequently asked questions