Mortgage Refinance Break-Even Example

Use this guide if...

This guide explains the assumptions behind a refinance break-even result.

• You want to understand break-even Use it when refinance costs and payment savings need to be compared in months.
• You are comparing current and new loans It helps separate current balance, current payment, new rate, new term and new costs.
• You want to see the tradeoff A lower payment can be useful, but the term and rolled-in costs can change interest over time.

Main inputs explained

These inputs decide whether the refinance creates payment savings and how long costs take to recover.

• Current loan balance The balance being refinanced. It is the starting point for the new loan comparison.
• Current payment and rate The current payment is compared with the estimated new payment to find monthly change.
• New interest rate The new rate drives the new payment and interest estimate.
• New loan term A longer term can lower payment but may extend interest costs.
• Refinance costs Closing, appraisal, legal, lender or other costs are recovered through monthly savings if savings exist.
• Costs paid or rolled in Rolled-in costs reduce upfront cash needed but increase the new balance.

Worked example

Suppose a current 400,000 mortgage is compared with a new loan at a rate that is 1 percentage point lower.

Current balance

400,000

The balance being compared with a new loan.

Current rate and term

7.0% for 30 years

Estimated current payment is about 2,660 per month.

New rate and term

6.0% for 30 years

Estimated new payment is about 2,398 per month before any rolled-in costs.

Monthly payment savings

About 263

Current payment minus estimated new payment.

Refinance costs

5,000

Costs are assumed to be paid upfront in this simple example.

Break-even

About 19 months

5,000 divided by monthly savings of about 263.

The example breaks even on upfront costs in about 19 months, but the broader refinance question still depends on term, interest and how long the loan is kept.

Result interpretation

Read the result as a scenario based on the assumptions entered, not as a decision rule.

What changes the result most

Before using the tool, gather the inputs or assumptions that are most likely to move the result.

• Rate difference A larger drop in rate usually increases monthly savings and shortens break-even.
• Refinance costs Higher costs take more months to recover through payment savings.
• New loan term Resetting to a longer term can lower payment but changes the interest comparison.
• Rolling costs into the loan This can reduce upfront cash needed while increasing balance and future interest.

Common mistakes

These are common ways an estimate can become cleaner than the real-world scenario.

• Looking only at monthly payment A lower payment can hide a longer term, higher balance or more total interest.
• Leaving costs out Appraisal, lender, title, legal or closing costs can materially change break-even.
• Ignoring how long you will keep the loan A break-even estimate matters more if you expect to keep the loan beyond that point.
• Treating the estimate as a quote Actual refinance terms can differ because of credit, timing, fees, rate locks and lender rules.

Related calculators

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Related guides

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What to try next

Use the next step that matches the question you want to answer.