Refinance Break-Even Calculator

What this calculator answers

Whether replacing your mortgage with a new one costs less over the time you expect to keep it, and when the closing costs are paid back. It compares the rest of your current loan with the new loan month by month and gives three answers: the saving (or extra cost) at your own horizon, the month refinancing pulls ahead, and the effect over both loans’ full lives, including the longer term a new 30-year loan usually brings.

How to use the refinance calculator

Your current loan (from your latest mortgage statement):

• Current balance: the principal you still owe, in dollars. 312400, $312,400 and 312.4k all work.
• Current interest rate: the note rate on your loan, in percent, not the APR.
• Time left on current loan: years and months until the last payment. The line under the boxes gives the total in months, the way some statements show it (27 years 4 months = 328 months).
• Current P&I (optional): principal and interest only. Leave it blank and the calculator uses the payment for the balance, rate and time left, shown under the box. Don’t enter the total you pay each month if it includes escrow for property taxes and insurance.

The new loan (from the Loan Estimate):

• New interest rate and new loan term: the rate and term on page 1 of the Loan Estimate, under Loan Terms. The term takes years and months, so you can match your current payoff date.
• Points: as a percentage of the new loan amount (one point is 1%), listed on page 2, section A of the Loan Estimate. The line under the box turns it into dollars.
• Other closing costs: the rest of the costs of getting the loan, minus any lender credit (page 2, section J). Leave out homeowner’s insurance, property taxes and escrow deposits: they are costs of owning the home, which you pay with either loan.
• Points paid and Other costs paid: paid at closing in cash, or added to the new loan amount. You can choose each separately.

Keep the new loan for: how long you expect to have it before you sell, pay it off or refinance again. This sets the comparison in the headline.

Results update as you type. The Try buttons switch to a 15-year term, a no-cost offer at 6.625%, a sale after 2 years, or all costs paid at closing instead of added to the loan. Keep my payoff date sets the new term to the time left on your current loan. What if repeats your numbers for other horizons and for new rates a quarter and half a point either side. To compare offers, press Save for comparison, change the rate, term or costs and save again.

How to calculate your refinance break-even point

The usual rule divides the closing costs you pay by how much the monthly payment drops:

$$\text{break-even months} = \frac{\text{costs paid at closing}}{\text{current payment} - \text{new payment}}$$

That rule is a good first look when the term stays about the same and every cost is paid in cash. It goes wrong in two common cases: when costs are added to the loan (they don’t show up as cash, but you pay them back with interest) and when the term changes (a shorter term raises the payment but saves interest; a longer one lowers it but adds interest).

So this calculator also finds the total-cost break-even: the first month in which refinancing has cost you no more than keeping your loan. The cost of each choice after $m$ months is what you have paid plus what you still owe:

$$\text{cost}(m) = \text{cash at closing} + \text{payments made} + \text{balance still owed}$$

Payments plus the balance still owed always equal the starting balance plus the interest charged, so the saving works out to

$$\text{saved}(m) = \text{interest saved} - \text{closing costs}$$

where the interest saved is counted through month $m$ and the closing costs include any added to the loan. Refinancing breaks even in the month the interest you save covers the whole closing cost. Each loan’s payment is the standard level payment $M = L \times i \div (1 - (1 + i)^{-n})$, where $L$ is the loan amount, $i$ is the annual rate ÷ 12 and $n$ is the number of months; each month’s interest is the balance × $i$, rounded to the cent.

Worked example: $312,400 at 7.25% refinanced to 6.125%

You owe $312,400 at 7.25% with 27 years 4 months (328 months) left. The offer is a 30-year loan at 6.125% with half a point paid at closing and $5,850 of other closing costs added to the loan. You expect to keep it for 7 years.

1. Current payment: i = 7.25% ÷ 12 = 0.00604167, so M = $312,400 × 0.00604167 ÷ (1 − 1.00604167⁻³²⁸) = $2,191.27 a month.
2. New loan amount: $312,400 + $5,850 = $318,250.
3. Points: 0.5% × $318,250 = $1,591.25, paid at closing. Closing costs total $1,591.25 + $5,850 = $7,441.25.
4. New payment: i = 6.125% ÷ 12 = 0.00510417, so M = $318,250 × 0.00510417 ÷ (1 − 1.00510417⁻³⁶⁰) = $1,933.72, which is $257.55 less each month.
5. Simple break-even: $1,591.25 ÷ $257.55 = 6.18, so the cash paid at closing is back after payment 7.
6. After 7 years (84 months), keeping the loan costs $184,066.68 of payments + $279,277.10 still owed = $463,343.78.
7. Refinancing costs $1,591.25 at closing + $162,432.48 of payments + $285,909.33 still owed = $449,933.06.
8. Saved by refinancing over 7 years: $463,343.78 − $449,933.06 = $13,410.72. The same from interest: $150,943.78 − $130,091.81 = $20,851.97 saved, minus $7,441.25 of closing costs.
9. Total-cost break-even: the interest saved first reaches $7,441.25 in month 29.

The two break-evens differ by almost two years because the simple rule sees only the $1,591.25 paid in cash. The $5,850 added to the loan is repaid inside the new payment, with interest, so the total-cost figure counts it. In a spreadsheet, =PMT(6.125%/12, 360, -318250) gives the new payment before rounding to the cent.

Does refinancing restart your loan term?

Yes, unless you choose a term that matches the time you have left. In the example, a 30-year loan means 360 more payments instead of 328, so you’d pay for 2 years 8 months longer, and the early payments on the new loan are mostly interest again. The lower rate still wins here over the full life of both loans: $377,890.04 of interest on the new loan against $406,331.69 left on the current one, so refinancing saves $21,000.40 once the $7,441.25 of costs is counted.

The saving isn’t steady, though. It grows only while the new loan charges less interest each month than the current one would. From month 249, the current loan’s smaller balance charges less interest than the new loan’s, so the saving peaks at $36,316.77 in month 248 and then shrinks. After month 328 the current loan would have been paid off, but the new one still charges interest for another 32 months: the saving is $25,923.43 at month 328 and $21,000.40 after 30 years.

Keep my payoff date sets the new term to 27 years 4 months. The payment is then $2,001.15, only $190.12 lower, but refinancing saves $14,796.75 over 7 years and $60,767.26 over the life of the loan. Choosing a 15-year term raises the payment by $515.84 to $2,707.11, so the simple rule has no answer at all. Yet the interest saved covers the closing costs by month 25, refinancing saves $29,307.42 over 7 years, and the new loan’s interest falls to $169,030.99.

Refinancing isn’t the only way to shorten a mortgage. Paying a little extra principal each month on your current loan also ends it sooner and cuts the interest, with no closing costs; a mortgage extra payment calculator shows how much for your loan.

Paying closing costs upfront vs. rolling them into the loan

Paying costs at closing means less interest later; adding them to the loan means less cash now and a larger balance. With every cost in the example paid at closing, the new loan is $312,400 and the points come to $1,562.00, so $7,412.00 is due at closing. The payment falls to $1,898.18, $293.09 less than now, the simple and total-cost break-evens both land at month 26, and refinancing saves $15,831.42 over 7 years instead of $13,410.72.

When points are added to the loan, they are a percentage of an amount that already includes them, so the calculator solves for the loan: L = (balance + other costs added) ÷ (1 − points). It shows the new loan amount in the results.

A “no-closing-cost” refinance usually means one of two things: the lender pays the costs in exchange for a higher rate, or the costs are added to the loan. Enter the first as zero costs at the higher rate, and the second with its costs set to Added to the loan. With the No-cost offer at 6.625% example, the payment drops $190.94 and refinancing is ahead from the first month, $12,271.26 after 7 years. But from month 345 it costs more than keeping your loan would have, and over the full life of both loans it costs $1,388.87 more. The trade favors a loan you won’t keep for long.

Are points worth paying when you refinance?

Points pay off only if you keep the loan long enough for the lower rate to make up for them. Suppose the same lender also quotes, for example, 6.25% with no points. On the $318,250 loan the half point costs $1,591.25 and lowers the payment by $25.80 a month, so the simple rule says 62 months. Counting interest, the point pays for itself in month 48, and after 7 years the offer with points has cost $1,198.50 less. To compare offers like these, calculate each one and press Save for comparison; the table shows how each differs from the first.

When refinancing doesn’t pay off

Refinancing loses money when you don’t keep the new loan long enough for the interest saved to cover the closing costs. In the example, that takes 29 months. The Selling in 2 years example shows the other side: after 24 months refinancing is still $1,206.24 behind.

The How long you keep it tab under What if shows this for your own numbers. For the example:

It also loses money when the new rate is not low enough, or when a much longer term keeps charging interest after your current loan would have ended, as in the no-cost example. When the interest saved never covers the costs, the result says so instead of showing a break-even month.

Reading the result

• The headline is the saving (or extra cost) over the time you keep the new loan, with a one-line verdict that combines the payment change, the break-even and that saving.
• Break-even (total cost) is the month refinancing pulls ahead; the line under it gives the simple rule’s month. Right away means there are no costs to recover; Never means the interest saved never covers them.
• What each choice costs lists cash at closing, payments and the balance still owed for both choices at your horizon, and the difference line by line.
• The chart shows the saving month by month: below zero at the start by the closing costs, crossing zero at the break-even, and marked at your horizon.
• The term note compares how long each loan lasts and its lifetime interest.
• Both loans side by side lists each year or each month of both schedules, with the saving so far; both tables download as CSV.
• What if reruns your numbers for other horizons and for new rates 0.25 and 0.5 points either side. At 5.875%, the example saves $18,980.61 over 7 years; at 6.375%, $7,828.10.

Assumptions and limitations

• Both loans have fixed rates and monthly payments. Adjustable-rate loans, interest-only periods and balloon payments are not modeled.
• Payments are principal and interest only. Escrow for taxes and insurance is left out, and so is any mortgage insurance; check each Loan Estimate for it.
• No cash out, no prepayment penalty, no extra payments and no tax effects.
• Dollars are added up as they are paid. The monthly saving is not assumed to be invested, and a dollar later counts the same as a dollar now.
• Month 1 is the next payment on both loans; the weeks between closing and the first payment are ignored.
• Interest and payments are rounded to the nearest cent, and the last payment of each loan absorbs the difference.
• The results are an educational estimate, not a loan offer or financial advice.

Common mistakes

• Entering the full monthly payment as P&I. The amount you pay often includes escrow for taxes and insurance, which refinancing doesn’t change. If the payment you enter is more than the principal and interest for your balance, rate and time left, the calculator says so.
• Comparing APRs to note rates. Enter the interest rate for both loans. An APR folds in fees, and this page counts the fees separately.
• Judging by the payment alone. A 30-year refinance can lower the payment while costing more over its life; the no-cost example above does both.
• Ignoring costs added to the loan. They don’t reduce your cash at closing, so the simple rule treats them as free, but you repay them with interest.
• Counting insurance, property taxes and escrow deposits as closing costs. They are costs of owning the home, which you pay under either loan, so they don’t belong in the comparison.
• Using the wrong horizon. The answer depends on how long you keep the loan; try the shortest, longest and most likely time you can see yourself keeping it.