Refinance Break-Even Calculator for Mortgages

A refinance only pays for itself if you keep the loan long enough for the lower payment to recover what you spend to close. The refinance break-even calculator rebuilds both payments with the standard amortization formula on the current balance, then divides closing costs by the monthly savings. If you spend $6,000 to save about $177 a month, break-even is roughly 34 months. Move before that point and the refinance is a net cash loss on the payment comparison alone. Each payment is M = P × r × (1 + r)^n / ((1 + r)^n − 1), where P is the current balance, r is the annual rate divided by 12, and n is years × 12. The current payment uses the remaining term and the existing rate. The new payment uses the offered rate and the new term. Monthly savings can be negative if you shorten the term enough that the payment rises; in that case there is no payment-based break-even even if you will pay less interest over the life of the loan. Homeowners use break-even when a 0.5–1.0 point rate drop looks attractive on a quote sheet. It is the right first filter if you might sell, relocate, or recast within a few years. It is the wrong sole metric if you refinance to cash out, to switch from ARM to fixed, or to cut the term and pay more each month on purpose. Closing costs should include origination, appraisal, title, and credits you will actually pay, whether in cash or rolled into the new balance. The months-to-recover figure ignores tax deductibility of interest, points, and the extra interest that appears if costs are financed. It also ignores remaining-interest totals. Treat it as a cash-flow hurdle: if you will not stay past break-even, keep the current loan unless another non-payment reason dominates. Confirm fees on a Loan Estimate and speak with a lender or adviser before you lock.