Refinance Break-Even Calculator

How to use it

Current loan: the balance today, your interest rate and how many payments are left. On a 30-year loan you took out five years ago, that is 360 − 60 = 300.
New loan: the rate and term from the Loan Estimate.
Closing costs: the fees for the new loan, from the Loan Estimate. Tick the box if you will add them to the new balance instead of paying cash.

The math

Monthly saving = current P&I − new P&I
Break-even (months) = closing costs ÷ monthly saving

Both payments use the standard fixed-rate formula. The calculator also totals every remaining payment on each loan, so you can see the lifetime cost, not just the monthly change.

Worked example

You owe $300,000 at 7.25% with 324 payments left, so your principal and interest is $2,112.58. A new 30-year loan at 6.25% has a payment of $1,847.15, a saving of $265.43 a month. With $6,000 of closing costs paid in cash, break-even = 6,000 ÷ 265.43 = 22.6 months, so the refinance has paid for itself in the 23rd month.

Over the full term, the remaining payments on the current loan total about $684,477. The new loan's payments plus the $6,000 come to about $670,975, roughly $13,500 less, even though it runs three years longer. At a smaller rate drop, the longer term can make the new loan cost more overall despite the lower payment.

If you add the $6,000 to the loan instead, the payment is $1,884.09, the saving $228.49, and break-even stretches to about 26 months.

Things the simple break-even misses

Restarting the clock. Moving from 27 years left to a new 30-year term lowers the payment partly by stretching it. Compare the same remaining term (choose 20 years, for instance) to see the pure rate effect.
Points. Paying points to lower the rate adds to closing costs. The CFPB notes that points make most sense if you keep the loan a long time; this calculator shows how long "long" is.
Cash-out. Taking cash out raises the new balance. The break-even math no longer measures the refinance alone.
Mortgage insurance. A new appraisal might let you drop PMI, or a new FHA loan might add MIP. Include those in the monthly payments you compare.
Taxes. Interest deductions and the timing of points deductions can change the result. The IRS covers this in Publication 936.

When a refinance tends to pay off

The pattern from the formula is simple. The bigger the rate drop and the smaller the costs, the faster the break-even. The longer you keep the new loan past that point, the more you save. If you might move in the next couple of years, a refinance with a 26-month break-even is a gamble. If you plan to stay a decade, it can save a lot.

Freddie Mac's weekly survey shows where average rates are; the figure and date appear on our payment calculator. Your own quote depends on your credit, loan-to-value ratio and the lender, so get Loan Estimates from more than one lender.

This calculator is educational. It is not advice about whether to refinance.

Common questions

How much does refinancing cost?

It varies by lender and loan size. The Loan Estimate for the new loan lists every fee; use its total closing costs here. Closing costs often include appraisal, title and government recording charges.

Is a no-closing-cost refinance free?

No. The CFPB explains that lender credits that cover closing costs come with a higher interest rate, or the costs are added to the loan. Run both versions through the calculator.

Should I count escrow and prepaid interest as costs?

Usually not. Prepaid taxes and insurance and a new escrow deposit are your money moving between accounts, and the old escrow balance is normally refunded. Count the fees.

Refinance Break-Even Calculator: When Does It Pay Off?