Refinance Break-Even Calculator

How to use this calculator

This refinance break-even calculator tells you how long it takes for a new loan to pay for itself. It also shows whether you come out ahead overall. You'll need a recent mortgage statement and a lender's Loan Estimate.

• Current balance: the principal you still owe, from your statement.
• Current rate: your existing interest rate, not the APR.
• Years left: how much time remains on your current loan.
• New rate and new term: from the lender's quote. Terms run from 10 to 30 years.
• Closing costs: total fees plus any points. Your Loan Estimate shows this as "Total Closing Costs."
• Roll costs into loan: adds the closing costs to the new balance instead of paying cash.
• Cash out: extra money you take out of your equity.

You'll see your monthly savings, two break-even figures and the lifetime difference. A chart shows how far ahead or behind you are each month. If the lower payment comes partly from stretching the loan back out, you'll see a warning.

How we calculate refinance break-even

We show two break-even numbers. Most calculators show only the first.

Monthly savings = current P&I − new P&I

Simple break-even (months) = closing costs ÷ monthly savings

True break-even = first month where
  (payments made on current loan + balance still owed)
  ≥ (closing costs + payments made on new loan + new balance − cash out)

Lifetime difference = all remaining current payments
                      − (all new payments + cash costs) + cash out

The true break-even counts what you still owe, not just what you've paid. That matters because a new loan pays down principal at a different speed.

Worked example: a $320,000 balance at 8% with 28 years left, refinanced to a 30-year loan at 6.82%, with $6,500 in closing costs paid in cash.

Here both methods agree, and the refinance looks solid. The calculator still flags that you're resetting 28 years to 30.

Why simple break-even can mislead

The simple formula only compares monthly payments. A lower payment can come from two places: a lower rate, or more years to pay. The second one isn't savings. It's spreading the same debt over more time.

Take a loan with 25 years left at 7.32%, refinanced into a new 30-year loan at 6.82%, with the same $320,000 balance and $6,500 in costs.

• Monthly savings: about $237
• Simple break-even: 28 months
• True break-even: 61 months
• Lifetime difference: costs about $60,800

The payment drops, and the simple break-even looks fine. But you add five years of payments, so you pay more in total. The true break-even and lifetime figures catch this.

It can work the other way, too. In the first example, choosing a 25-year term instead of 30 cuts monthly savings to $165. The simple break-even stretches to 40 months. Yet the true break-even stays at 21 months, and lifetime savings jump to about $128,900. A smaller monthly saving can be the better deal.

Is it worth refinancing for 1%?

A 1-point drop is a common rule of thumb, but your timeline matters more than the size of the drop. Using the default example, here's 8% refinanced to different rates on a new 30-year loan:

A half-point drop doesn't pay off here, because the closing costs and term reset outweigh it. A full point does, if you keep the loan more than about two years.

Refinance 30 to 15 year

Switching to a 15-year loan usually raises your payment but saves the most money. Refinancing the same $320,000 at 8% into a 15-year loan at 6.68% gives:

• New payment: about $2,819, which is $430 more a month
• True break-even: 17 months
• Lifetime difference: saves about $288,900

Simple break-even doesn't exist here, because there are no monthly savings. That's another reason we show the true figure. If you like the idea but not the payment, you can refinance to 30 years and prepay. Our mortgage calculator shows what extra payments do.

Cash-out refinance and points

Cash-out refinance: you borrow more than you owe and take the difference in cash. The calculator adds it to the new loan. In the default example, $40,000 cash out raises the new payment to about $2,352. Monthly savings fall to $38. You're borrowing against your home, so compare the cost with a personal loan or home equity loan before deciding.

Points: each discount point costs 1% of the loan and lowers your rate. Add the points to closing costs and enter the lower rate. Then compare the true break-even with and without points. If you might move or refinance again within a few years, points often don't pay off.

When not to refinance

Refinancing may not make sense when:

• You'll move soon. If you sell before the true break-even, you lose money.
• You've paid the loan down a lot. Late in a loan, most of each payment is principal. Restarting resets that.
• The savings come only from a longer term. Check the lifetime difference.
• Closing costs are high relative to the savings. Ask lenders for a lender credit, or compare no-closing-cost offers.
• Your credit has dropped. You may not qualify for the advertised rate.

Mortgage interest may be deductible if you itemize, but points on a refinance are usually deducted over the life of the loan, not all at once. IRS Publication 936 explains the rules. When you're ready to compare, see current averages from Freddie Mac and get at least three Loan Estimates.