Costs and break-even
Refinance Break-Even Calculator: When Does Refinancing Pay Off?
Compare your current payment with a new loan, see how many months of savings it takes to earn back the closing costs, and check the change in total interest.
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Refinance break-even
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In plain words
Refinancing $300,000 from 7.5% to 7.4% changes your principal and interest from $2,162 to $2,077, a saving of $85 a month. With $6,000 in closing costs, your break-even point is 71 months (5 yrs 11 mo). Over the life of both loans, total interest plus costs changes by $53,217 (a negative number is a saving).
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Key figures
- Months to break even71 months (5 yrs 11 mo)
- Monthly payment saving$85
- New principal and interest$2,077
- New loan amount$300,000
- Change in total interest, including costs$53,217
- Net savings
View chart as table
| Year | Net savings |
|---|---|
| Year 0 | -$6,000 |
| Year 1 | -$4,979 |
| Year 2 | -$3,959 |
| Year 3 | -$2,938 |
| Year 4 | -$1,917 |
| Year 5 | -$896 |
| Year 6 | $124 |
| Year 7 | $1,145 |
| Year 8 | $2,166 |
| Year 9 | $3,187 |
| Year 10 | $4,207 |
Compare new loan terms
| Scenario | New principal and interest | Monthly payment saving | Months to break even | Interest over new term |
|---|---|---|---|---|
| 15-year new loan | $2,764 | -$602 | Not reached | $197,523 |
| 20-year new loan | $2,398 | -$236 | Not reached | $275,633 |
| 30-year new loan | $2,077 | $85 | 71 months (5 yrs 11 mo) | $447,770 |
Year by year
| Year | Net savings |
|---|---|
| Year 1 | -$4,979 |
| Year 2 | -$3,959 |
| Year 3 | -$2,938 |
| Year 4 | -$1,917 |
| Year 5 | -$896 |
| Year 6 | $124 |
| Year 7 | $1,145 |
| Year 8 | $2,166 |
| Year 9 | $3,187 |
| Year 10 | $4,207 |
How to use this calculator
- Enter your current balance, interest rate and the years left on your loan.
- Enter the new rate a lender quoted and choose the new loan term.
- Enter the total closing costs from the Loan Estimate.
- Read the monthly saving and the break-even month, then compare the break-even point with how long you plan to stay.
- Check the change in total interest to see whether a longer term costs more in the end.
A lower rate is only half of the refinance question. The other half is cost: a refinance usually comes with thousands of dollars in closing costs, and it pays off only if you keep the new loan long enough for the monthly savings to cover them. This refinance break-even calculator finds that point and also shows whether the new loan costs more or less interest over its full life.
How this refinance break-even calculator works
The calculator finds two principal-and-interest payments with the standard formula,
M = P × r ÷ (1 − (1 + r)^−n): one for your current balance over the years you have left at your current rate,
and one for the same balance over the new term at the new rate. Then:
Monthly saving = current payment − new payment
Break-even (months) = closing costs ÷ monthly saving, rounded up
It also compares lifetime cost:
Change in interest = (new loan interest + closing costs) − interest left on current loan
A negative number means the refinance saves money over the life of the loans; a positive number means it costs more, even if the payment drops.
Worked examples
Example 1: a full point lower, same type of loan
A homeowner owes $300,000 with 27 years left at an assumed 7.5% rate. A lender offers an assumed 6.5% on a new 30-year loan, with $6,000 in closing costs.
- Current principal and interest: about $2,162 a month.
- New principal and interest: about $1,896 a month.
- Monthly saving: about $266.
- Break-even: $6,000 ÷ $266 = 22.6, rounded up to 23 months.
- Change in total interest, including costs: about −$11,920, a lifetime saving even though the term restarts.
If this owner expects to stay at least two years, the refinance pays for itself. Choosing a 20-year term instead would raise the payment by about $75 a month, so there is no monthly break-even, but total interest plus costs would fall by about $157,741.
Example 2: a small rate drop and a reset clock
Another owner has $250,000 left with 25 years to go at an assumed 7%. A new 30-year loan at an assumed 6.5% costs $5,000 to close.
- Current payment: about $1,767. New payment: about $1,580.
- Saving: about $187 a month, so break-even comes after 27 months.
- Change in total interest, including costs: about +$43,777.
The payment drops, but stretching 25 years into 30 means about $44,000 more interest overall. This owner might keep the lower payment and pay a little extra each month to finish on the original schedule; see the extra payment calculator.
What your result means
Compare the break-even month with how long you realistically expect to keep the loan:
| Your plans | Break-even result | What it suggests |
|---|---|---|
| Staying many years | Well under your time in the home | Refinance is likely worth a closer look |
| Unsure, may move | Close to your expected stay | Savings are thin; small changes can flip the answer |
| Moving soon | Longer than you expect to stay | You would likely lose money on the costs |
| Any | No break-even (payment goes up) | Only worth it for the interest savings of a shorter term |
Also look at the change in total interest. A short break-even with a large positive interest change means you are trading lower payments now for more cost later.
Program rules that change the answer
| Refinance type | What is different | Effect on break-even |
|---|---|---|
| Conventional rate-and-term | Full closing costs; PMI may end if you have 20% equity | Removing PMI adds to the monthly saving |
| FHA streamline | Reduced paperwork for current FHA borrowers; FHA MIP still applies | Lower costs can mean a faster break-even |
| VA IRRRL | 0.5% funding fee unless exempt; for current VA loans | Low costs, often a short break-even |
| Cash-out refinance | Larger new balance | The saving formula here does not fit; the payment may rise |
If your current loan has FHA mortgage insurance for life, a conventional refinance could remove it, which adds to your real monthly saving beyond what this calculator shows.
Assumptions
- Both loans are fixed-rate and fully amortizing.
- The new loan amount equals your current balance; closing costs are paid in cash, not financed.
- Mortgage insurance, taxes and homeowners insurance are left out because they may change the same way under either loan.
- Prepaid items and escrow deposits are not closing costs for this purpose, since you get the old escrow balance back.
Common mistakes
- Counting only the rate. A lower rate with high costs or points can take years to pay off.
- Ignoring the reset term. Moving from 25 years left to a new 30-year loan adds five years of payments.
- Forgetting a prepayment penalty. Some current loans charge one; add it to the closing costs.
- Using the full payment instead of principal and interest. Taxes and insurance do not change with a refinance.
Limits of this estimate
Lenders quote different rates and costs, and your rate depends on credit, equity and loan type. Get Loan Estimates from more than one lender on the same day and use their figures here. If the offer includes points, check them separately with the mortgage points calculator. For program rules, see the guides to conventional loans and VA loans.
For context, the national average 30-year fixed rate was 7.40% as of October 15, 2026 (Freddie Mac). FHA, VA and USDA rates are set by each lender and often differ.Source: Freddie Mac Primary Mortgage Market Survey, via FRED
Frequently asked questions
How is the refinance break-even point calculated?
Divide the closing costs by the monthly payment saving. For example, $6,000 in costs and a $266 monthly saving gives 22.6, which rounds up to 23 months.
Is it worth refinancing for a 1% lower rate?
It can be, if you will keep the loan well past the break-even point. A rate drop matters more on a large balance and early in the loan. Always check the total interest too, not just the payment.
Why can my total interest go up even with a lower rate?
Refinancing into a new 30-year loan restarts the clock. You may pay a lower rate for more years, so total interest can rise even while the monthly payment falls.
What if the new payment is higher?
That usually happens when you move to a shorter term. There is no monthly break-even, but you may save a large amount of interest. The calculator shows that in the change in total interest.
Should I roll the closing costs into the new loan?
You can, but then you pay interest on them and the balance goes up. The break-even math still applies, because the costs are paid either way.
Are refinance points tax deductible?
Under IRS rules, points paid to refinance are generally deducted over the life of the loan, not all in the year you pay them, if you itemize. Ask a tax professional about your situation.
Are there cheaper refinance options for government loans?
Yes. VA borrowers may use an Interest Rate Reduction Refinance Loan (IRRRL), with a 0.5% funding fee unless exempt, and FHA borrowers may use an FHA streamline refinance. Both often need less paperwork.
Sources
Read the guides
Related calculators
- Mortgage payment See what a home would really cost each month, not just principal and interest, but the taxes, insurance, HOA dues and mortgage insurance that lenders count too.
- VA funding fee The VA funding fee is a one-time charge on most VA loans. Enter your loan details to see the percentage that applies, the dollar amount and your loan total if you finance it.
- PMI removal date See how many payments it takes before you can ask your servicer to cancel private mortgage insurance, and when federal law ends it automatically.
- Closing costs Get a planning range for your closing costs and the total cash you will need on closing day, before you have a Loan Estimate in hand.