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The break-even formula
Break-even (months) = total closing costs ÷ (current principal and interest − new principal and interest). If costs are $5,000 and the payment falls $200, you break even in 25 months. Each month after that is real savings, as long as the new loan does not stretch your term enough to cost more interest overall.
Break-even by cost and monthly savings
| Closing costs | Save $100/mo | Save $150/mo | Save $200/mo | Save $300/mo | Save $400/mo |
|---|---|---|---|---|---|
| $3,000 | 30 mo | 20 mo | 15 mo | 10 mo | 8 mo |
| $5,000 | 50 mo | 34 mo | 25 mo | 17 mo | 13 mo |
| $7,500 | 75 mo | 50 mo | 38 mo | 25 mo | 19 mo |
| $10,000 | 100 mo | 67 mo | 50 mo | 34 mo | 25 mo |
| $15,000 | 150 mo | 100 mo | 75 mo | 50 mo | 38 mo |
Two traps the simple formula misses
- Term reset: refinancing 25 remaining years into a new 30-year loan lowers the payment partly by adding five years. The lifetime line catches this.
- Rolled-in costs: if costs are added to the balance, you pay interest on them. Enter the larger balance to see the true payment.
Shorter terms
If you refinance into a 15-year loan the payment may rise while total interest falls sharply. Payment break-even is then “never”, but the lifetime result shows the savings.
Example rates are for comparison only, not offers or current quotes. Your rate depends on credit, loan-to-value and lender.
Sources and assumptions
- Same amortization formula as the refinance calculator.
Related
Frequently asked questions
What is a good break-even point for a refinance?
One you will clearly pass before you sell or refinance again. Many homeowners look for two to three years or less, but it depends on how long you plan to stay.
Do I include points in closing costs?
Yes. Discount points are part of the cost of getting the lower rate, so include them.
What if the new payment is higher?
Then there is no payment break-even. Look at the lifetime result instead; a shorter term can raise the payment and still save interest.