Mortgage Refinance Break-Even Calculator

Understand Your Mortgage Refinance Break-Even Point

This mortgage refinance break-even calculator estimates how long it takes for the monthly savings from a new mortgage to recover the upfront costs of refinancing. It compares the payment on your existing loan with the payment on a new loan with a different interest rate and term, then shows how many months (and years) it will take for the savings to equal your closing costs.

Refinancing can be a powerful way to lower your interest rate, reduce your monthly payment, or adjust the length of your mortgage. But every refinance comes with costs such as lender fees, appraisal charges, and other closing costs. The key question is whether the long-term savings are large enough, and fast enough, to justify those upfront expenses.

The break-even point is the moment when your total savings from the refinance equal the money you paid to obtain the new loan. If you sell your home or refinance again before reaching that point, you may not fully recover your costs. If you keep the loan past that point, the refinance begins to provide net financial benefits.

How This Break-Even Calculator Works

The calculator models both your current mortgage and the proposed refinanced mortgage as standard fixed-rate, fully amortizing loans. It uses your inputs to estimate:

• The monthly payment on your current mortgage
• The monthly payment on the new refinanced mortgage
• Your estimated monthly savings from refinancing
• The break-even time in months and years based on your closing costs

To do this, it applies the standard mortgage payment formula to both loans and then compares the two results. The difference between the old and new payments is treated as your monthly savings from refinancing.

The Monthly Mortgage Payment Formula

For a fixed-rate mortgage, the monthly principal and interest payment is calculated from three key variables:

• L: the loan balance (principal)
• r: the monthly interest rate (annual rate divided by 12 and by 100)
• n: the total number of remaining monthly payments

The standard formula for the monthly payment P is:

In words, the calculator:

1. Converts your annual percentage rate (APR) to a monthly decimal rate: r = (APR / 100) / 12.
2. Converts your remaining term in years to total monthly payments: n = years_remaining × 12.
3. Applies the formula above to compute the monthly payment for both your current and new loans.

How the Break-Even Point Is Calculated

Once the calculator has both monthly payments, it determines your monthly savings from refinancing:

• S = old monthly payment − new monthly payment

If this value is positive, your new loan is cheaper each month and you are saving money compared with your old loan. The break-even point in months, B, is then:

where C is your total refinancing closing costs. In plain language, the calculator divides your up-front costs by your monthly savings to find how many months it will take before you have saved back what you spent to refinance.

The calculator also converts this number into years by dividing by 12 so you can quickly see whether the break-even timing fits your plans for staying in the home.

If your monthly savings are zero or negative (meaning the new payment is the same as or higher than your old payment), the calculator will indicate that refinancing does not provide a payment-based benefit under the given assumptions.

Worked Example: When Does Refinancing Pay Off?

Consider a homeowner with the following situation:

• Current loan balance: $250,000
• Current interest rate: 5.00% (fixed)
• Remaining term: 20 years
• Potential new interest rate: 4.00% (fixed)
• Refinancing closing costs: $5,000

Step 1: Convert the rates and term.

• Old loan: r = 0.05 / 12, n = 20 × 12 = 240 payments
• New loan: r = 0.04 / 12, n = 240 payments (same remaining term)

Step 2: Compute the monthly payments using the amortization formula.

• The old payment is higher because the rate is 5%.
• The new payment is lower because the rate is 4%.

Suppose the old monthly payment is approximately $1,649 and the new payment is approximately $1,515. Your estimated monthly savings are:

S = $1,649 − $1,515 = $134 per month (rounded).

Step 3: Calculate the break-even point.

With $5,000 in closing costs and $134 in monthly savings:

B = $5,000 ÷ $134 ≈ 37.3 months.

It will take a little over 37 months (just over three years) for the lower monthly payments to recover your upfront refinancing costs. If you plan to stay in the home and keep this loan for significantly longer than three years, the refinance is more likely to be worthwhile from a payment-savings perspective. If you expect to sell or refinance again in two years, you probably would not reach break-even.

How to Interpret Your Result

When you run the calculator, you will typically see three key outputs:

• Old vs. new monthly payment: How much your principal and interest payment changes after refinancing.
• Monthly savings: The difference between the old and new payments.
• Break-even period: The number of months and years needed for your total savings to equal your closing costs.

Use the break-even period to compare against your plans:

• If the break-even period is shorter than the time you expect to keep the home and the loan, the refinance is more likely to pay off.
• If the break-even period is longer than your expected time horizon, you may not fully recover your closing costs.
• If the calculator shows no savings or a negative benefit, refinancing at the given rate and term is unlikely to be advantageous from a monthly-payment standpoint.

Remember that the calculator focuses on monthly principal and interest savings. Other considerations, such as tax effects, changes in insurance or mortgage insurance premiums, and how quickly you want to pay off your home, can also affect your decision.

Comparison of Common Refinance Scenarios

The table below shows several example scenarios to illustrate how balance size, rate change, and closing costs can affect your break-even point. These are simplified examples meant for illustration only.

In the last scenario, the rate drop is very small, and the closing costs are relatively high compared to the balance. The resulting break-even period is more than 19 years, which is longer than many people plan to keep a mortgage. In a situation like that, refinancing probably would not be attractive, even though the interest rate is technically lower.

Key Assumptions and Limitations

This calculator is designed as a simple, educational tool and makes several important assumptions:

• Fixed-rate, fully amortizing loans: It assumes both your current and new mortgages are standard fixed-rate loans with level monthly payments until they are paid off.
• No cash-out or cash-in effects: It does not separately model the impact of taking cash out or bringing extra cash to closing, other than how that changes the loan balance you enter.
• Principal and interest only: The calculation focuses on principal and interest payments. It does not include property taxes, homeowners insurance, HOA dues, or mortgage insurance premiums, even though those may be part of your total monthly housing payment.
• No prepayment penalties or lender credits unless you include them in costs: Any prepayment penalty on your old loan or credits from the new lender should be added to or subtracted from the closing costs you enter. The calculator does not model these items automatically.
• Constant payments and rates: It assumes interest rates remain fixed for the life of each loan and that you make scheduled payments on time without additional principal prepayments.
• No tax or investment analysis: The tool does not account for tax deductibility of mortgage interest, alternative uses of your cash, or the investment return you might earn elsewhere.
• Single refinance event: It assumes you will not refinance again during the period you are analyzing.

Because of these simplifications, your actual results may differ from the estimates shown. The calculator is intended for planning and comparison, not for exact budgeting or regulatory disclosure.

When to Be Cautious About Refinancing

Even if the break-even period looks attractive, a refinance is not automatically the right choice. Consider additional questions such as:

• Will resetting your loan term cause you to pay more total interest over the life of the loan?
• Are you close to paying off your current mortgage, and do you value being debt-free sooner more than a lower monthly payment?
• Do you expect to move, sell, or refinance again before reaching the break-even point?
• Are there prepayment penalties, new mortgage insurance requirements, or other costs not fully captured by your closing cost estimate?

It can be helpful to run multiple scenarios (for example, keeping the same remaining term versus stretching to a longer term, or comparing different closing cost packages) to see how sensitive your break-even timing is to each factor.

Important Disclaimer

This mortgage refinance break-even calculator provides estimates based on the information you enter and standard amortization formulas. It does not constitute financial, tax, or legal advice and should not be the sole basis for any mortgage decision. Interest rates, fees, tax rules, and your personal circumstances can change.

Before refinancing, consider speaking with a qualified mortgage professional or financial advisor who can review your full situation, including credit profile, tax implications, and long-term goals. You may also wish to compare multiple lender offers and review official loan disclosures that show detailed costs and payments.