What is the break-even point on a refinance?

The number of months it takes for the monthly savings to repay the closing costs: closing costs ÷ monthly saving. If refinancing costs $7,500 and lowers the payment by $335, the break-even is about 23 months. If you sell or refinance again before that, you lose money.

How much does the rate need to drop to make refinancing worthwhile?

The old “1 percentage point” rule is a rough guide. What matters is whether you will stay past the break-even month. On a $320,000 balance, a drop from 7.25 % to 6.0 % saves about $335 a month, so typical closing costs are recovered in about two years; a 0.5-point drop takes roughly twice as long.

Why does my lifetime interest go up even though the payment goes down?

Because a new 30-year term restarts the clock. If you have 27 years left and refinance to 30, you pay three extra years. Keep paying your old amount on the new loan (the third row in the results) and you usually finish sooner and pay less interest than either alternative.

What closing costs should I include?

Origination or points, appraisal, credit report, title search and insurance, recording fees and any prepaid interest — typically 2–5 % of the loan. Escrow deposits are not a cost (you get the old escrow back). A “no-closing-cost” refinance has costs too; they are baked into a higher rate.

Does refinancing reset my mortgage interest deduction?

Interest on refinanced acquisition debt stays deductible under the same limits, and points paid on a refinance are deducted over the life of the loan rather than at once. Cash-out amounts used for anything other than the home are generally not deductible. Confirm with a tax professional.

Refinance Break-Even Calculator

Name: Refinance Break-Even Calculator
Author: Miikka

Enter your current balance, rate and years remaining, then the rate, term and closing costs you have been offered. The calculator shows the new payment, the monthly saving, how many months until the savings repay the closing costs, the net gain for the years you plan to stay, and the lifetime interest under each option — including the smart middle path of refinancing but keeping your old payment.

By Miikka · CalcBrew · Updated Sep 16, 2026

Current loan balance ($)

Current rate (%)

Years remaining

Years you plan to keep the home

New rate (%)

New term (years)

Closing costs ($)

Closing costs are typically 2–5 % of the loan amount (origination, appraisal, title, recording). Enter 0 for a “no-cost” refinance that rolls fees into the rate.

Break-even

23 mo

1.9 years to recoup $7,500

New payment

$1,918.56

vs $2,253.42 now

Monthly saving

$334.86

Net gain if you stay 7 yrs

$20,628

savings minus closing costs

Loan	Payment	Term	Interest to payoff
Keep current loan	$2,253.42	324 mo	$410,108
Refinance, new full term	$1,918.56	360 mo	$370,682 + $7,500 costs
Refinance, keep paying $2,253.42	$2,253.42	249 mo	$241,102 + $7,500 costs

A longer new term lowers the payment but can raise lifetime interest; the third row shows the common fix — refinance to the lower rate but keep paying your old amount.

The break-even formula

break-even months = closing costs ÷ (current payment − new payment)

net gain = monthly saving × months you keep the loan − closing costs

Worked example: $320,000 remaining at 7.25 % with 27 years left costs $2,253 a month. Refinancing to 6.0 % over 30 years drops it to $1,919 — a $335 saving. With $7,500 in closing costs the break-even is 23 months. Stay seven years and you are about $20,600 ahead. Lifetime interest falls from about $410,000 to $371,000 despite the three extra years; keep paying $2,253 on the new loan and it is gone in about 21 years with roughly $241,000 of interest — the best of the three options.

The payment formula is the standard amortization: P × r ÷ (1 − (1 + r)^−n). Interest to payoff is payment × months − principal. Taxes, insurance and PMI are excluded because they do not change with the rate; if refinancing removes PMI, add that to the monthly saving.

When refinancing usually pays

You plan to stay well past the break-even month; the rate drop is at least 0.75–1 point or you are escaping an adjustable rate, PMI or a balloon; and you can shorten the term or keep the old payment so the extra years do not eat the savings. It usually does not pay when you are moving within 2–3 years, when the loan is small (fixed costs dominate) or when you are in the last third of the schedule, where most of each payment is already principal.

Frequently asked questions

Cite this calculator

APACalcBrew. (2026). Refinance Break-Even Calculator. https://calcbrew.com/refinance-break-even-calculator

MLA“Refinance Break-Even Calculator.” CalcBrew, 2026, calcbrew.com/refinance-break-even-calculator.

Link to https://calcbrew.com/refinance-break-even-calculator. Results are estimates; cite the underlying formula or data source for academic work.

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Refinance Break-Even Calculator

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