How to Calculate Your Mortgage Refinance Break-Even Point

7 min read · Updated September 26, 2026 · by Thomas M, Registered Investment Adviser (South Carolina)

Refinancing replaces your existing mortgage with a new one, usually to get a lower rate. But refinancing costs money, so the real question is not “is the new rate lower?” but “how long until the saving pays the costs back?” That time is the break-even point. This guide shows how to calculate it by hand and what else to check before you commit.

Step 1: Find your current and new payments

Mortgage payments use L × i ÷ (1 − (1 + i)⁻ⁿ), where i is the monthly rate and n the number of payments. Example: you owe $300,000 at 7% with 28 years left — a payment of $2,038.83. A new 30-year loan at 5.75% on the same balance gives $1,750.72.

Step 2: Work out the monthly saving

Current payment minus new payment: a monthly change of $288.11 lower. Compare only principal and interest; taxes and insurance usually don’t change in a refinance.

Step 3: Divide closing costs by the saving

Break-even months = closing costs ÷ monthly saving. With $6,000 of costs the break-even is 21 months (1 year 9 months). If you will likely sell or refinance again before then, the refinance loses money; if you will stay much longer, it wins.

Step 4: Check the total cost, not just the payment

A lower payment on a longer term can cost more overall. Add up every payment on each path: keeping the current loan costs $685,045.48; refinancing, including closing costs, costs $636,258.68, a net difference of $48,786.80 saved. Try a shorter term and the picture changes: a 15-year loan at 5.25% on the same balance has a net difference of $244,951.52 saved despite the higher payment of $2,411.63.

Rolling in costs and other traps

Rolled-in costs raise the new loan, so you pay interest on them. The calculator’s “roll them in” option shows the effect.
“No-closing-cost” loans normally carry a higher rate instead.
Resetting the clock restarts amortisation, where early payments are mostly interest.
Cash-out refinances raise the balance and are a different decision.

Use your lender’s Loan Estimate for real costs, and treat this guide as education rather than advice.

Practice questions

Test yourself, then tap to check. Answers are calculated by the tools linked below.

You owe $250,000 at 6.8% with 25 years left. A new 25-year loan at 5.8% costs $5,000 to arrange (paid upfront). What is the monthly saving and break-even?
Show answer
New monthly payment (principal + interest): $1,580.33 · Monthly change: $154.85 lower · Break-even point: 33 months (2 years 9 months)
A $450,000 home, 10% down, 7% rate, 30 years. What is the monthly principal and interest?
Show answer
Monthly payment (principal + interest): $2,694.48
A $180,000 balance at 5.5% with 22 years left. How much interest does an extra $150 a month save?
Show answer
Payoff time with extra payments: 17 years 9 months · Time saved: 4 years 3 months · Interest saved: $28,610.88

Frequently asked questions

What is the refinance break-even point?

The number of months of savings needed to repay your closing costs: closing costs divided by the monthly payment saving.

How much lower should the rate be to refinance?

There is no universal threshold; whether it works depends on costs and how long you will stay. A rate cut of roughly half to three-quarters of a point is often cited as a rough starting point, but always run the break-even.

Should I choose a shorter term when refinancing?

A shorter term usually has a lower rate and far less interest but a higher payment. Choose it only if the payment is comfortable.

Are closing costs tax deductible?

Rules vary and are changing; ask a tax professional. Mortgage-interest rules are summarised by the IRS.

Try it yourself

Mortgage Refinance CalculatorSee whether refinancing saves money: new payment, monthly saving, break-even month and total cost compared with keeping your loan.

Mortgage CalculatorEstimate a monthly mortgage payment, total interest and total cost.

Mortgage Payoff CalculatorSee how extra monthly payments or a lump sum shorten your mortgage and how much interest you save.

Keep learning

How Mortgage Payments Work7 min read

How to Pay Off Your Mortgage Early7 min read

How Compound Interest Works7 min read

Reviewed by Thomas M, Registered Investment Adviser (South Carolina), who launched his own financial advisory firm in 2010. Spot a mistake? Tell us. See our editorial policy. Finance content is educational and not financial advice; see the disclaimer.