Refinancing your mortgage can be an effective way to lower your monthly housing costs. However, refinancing isn’t always a wise decision – even when you’re able to reduce your current interest rate.
In most cases, the break-even point – the amount of time it takes your cumulative savings to outweigh the cost of refinancing – should play a key role in the decision-making process.
Our mortgage refinance break-even calculator will help you determine how long it will take for you to come out ahead on your refinance and provide you with the information you need to make an informed decision regarding your home loan.
Note: Refinancing may result in higher finance charges over the life of the loan, even if your monthly payment is lower.
How to Calculate Your Break-Even Point
Your break-even point – sometimes referred to as the break-even period – is the number of months it will take for your total monthly savings to outweigh the closing costs associated with refinancing.
In other words, the break-even point is when you begin saving money from your refinance.
Your closing cost figure focuses on required fees and taxes can vary greatly depending on:
- The lender you choose
- Whether you’re purchasing discount points
- Costs and customary charges in your area
So, how do you calculate your refinance break-even point? The basic formula is simple:
Your refinance closing costs / your monthly savings = the number of months until you break even.
Break-Even Point Examples
The refinance break-even calculator above can illustrate your monthly savings and the length of time until you break even on your refinance based on your payment reduction, interest costs, and after-tax savings.
But to add some perspective, here are a few break-even point examples that show how soon – or long – the typical homeowner could expect to pay before coming out ahead on their new loan.
Example #1: A 1% Rate Reduction
Homeowner #1 took out a $360,000 30-year mortgage three years ago at an interest rate of 7%. Their existing monthly payments are $2,395. They currently owe $348,200 on their home and can refinance into another 30-year mortgage at an interest rate of 6.0% with a monthly payment of $2,088.
Refinancing would save them $307 per month, but they would incur closing costs of $12,188 – around 3.5% of their mortgage balance due to the purchase of discount points.
In this example, homeowner #1 would have a break-even point of 40 months.
Related: Is It Worth It to Refinance for 1 Percent?
Example #2: 0.50% Rate Reduction
Homeowner #2 has had their current $200,000 30-year mortgage for seven years. Due to their credit, they qualified for an interest rate of 6.75% despite the lower average rates available at the time. Their current monthly payment is $1,297, with a remaining loan balance of $181,600.
They have improved their credit over the past few years, and even though rates have increased, they can refinance into another 30-year loan with an interest rate of 6.25% and monthly payments of $1,118.
With the half-point reduction, homeowner #2 will save $179 per month. Since they are not purchasing as many discount points as the first homeowner, their closing costs will be 2.5% of their loan balance – $4,539.
Here, their break-even point is only 26 months – just over two years.
Example #3: Payment Rises
Homeowner #3 took out their $450,000 30-year mortgage two years ago when interest rates were near their recent peak. Even with good credit and a sizable down payment, market conditions resulted in an interest rate of 7.75% with a $3,224 monthly payment.
Now that rates have come down, they can refinance their $441,800 balance at a rate of 6.5%. They also want to shorten their loan term and refinance into a 20-year mortgage with closing costs of 2% – $8,836.
Because they’re reducing their loan term and repaying their principal in a shorter period, their new monthly payments will be $3,294 – $70 more per month than they’re currently paying.
In this example, the standard break-even point calculation won’t work since their monthly payments are increasing. Instead, they look at the interest portion – $2,853 on their current loan and $2,393 on their new loan – and realize they’ll break even through interest savings after just 19 months.
Does It Always Make Sense to Refinance?
Even if you’re able to reduce your monthly payments by refinancing your mortgage, it may not always make sense to do so.
That’s where the break-even point comes into play.
If you plan to sell your home, refinance again, or pay off your loan before the break-even point, you may be better off keeping your current mortgage.
Say you’re able to reduce your monthly payments by $200 but will incur $7,200 in closing costs. This equates to a 36-month break-even point. Planning on moving in two years? Although you’d be paying less each month in the meantime, you’d end up losing out on around $2,400.
According to Redfin, the typical homeowner stays in their home for 11.8 years. However, this length can vary drastically by location – the median is 19.4 years in Los Angeles, while it shrinks to just 8 years in Louisville.
Another thing to consider is forecasted changes in interest rates.
If rates continue to decrease in the future, many borrowers may want to refinance again before their break-even period is up. If you believe rates will fall further, it might make sense to hold onto your current loan for now.
How we source rates and rate trends
Rates based on market averages as of Nov 30, 2025.Product Rate APR 15-year Fixed Refinance 5.28% 5.32% 30-year Fixed Refinance 6.24% 6.26%
Resetting Your Loan Term? Be Aware of the Long-Term Costs
Refinancing a home loan typically results in lower payments – but there’s more to consider than just your monthly savings.
If you’re resetting your mortgage term back to 30 years, you’re extending the amount of time you’ll owe on your home. This will result in paying more interest, which can add significant long-term costs depending on how long you’ve had your existing loan.
For example, a homeowner with a $250,000 mortgage at a 7% rate will have paid more than $68,500 in interest after just four years despite their principal balance only decreasing to around $238,700.
By refinancing into another 30-year term, they’re effectively starting the clock over. If they refinance their current balance at a rate of 6.5%, they will pay around $304,400 in lifetime interest on their new loan. With the amount they’ve already spent, this adds up to just over $24,000 more than they would have paid had they kept their original loan.
Mitigating These Long-Term Costs
When you refinance, you’re not necessarily required to opt for another 30-year loan term. Lenders offer mortgages in all shapes and sizes, and you can likely find one that matches or comes close to your remaining payment schedule.
While your monthly cost will not be as low as if you restarted back at 360 payments, a rate reduction can still save you money, and you’ll be avoiding much of the extra lifetime interest.
Although loan options vary by lender, most offer mortgages with terms of 15, 20, and 25 years.
Another effective strategy is to maintain the same-sized payments you’ve been making, with the additional amount going toward paying down your principal.
For example, if you’ve been making $2,250 monthly payments and your refinanced payment is just $1,900, continuing to pay that extra $350 would serve to pay off your loan sooner and reduce your total interest costs.
Related: Is It Better to Refinance Or Pay Extra Principal?
What About No-Cost Refinances?
You may have seen lenders advertising “no-cost” refinances and wondered how this impacts your break-even point calculation.
While a no-cost refinance may sound like a good deal on the surface, the reality is that you’ll end up paying the closing costs in one way or another.
Sometimes, these lenders will roll the costs into your new loan balance. While you won’t have to pay anything upfront, you’ll still repay the additional principal and the interest charges that come along with it.
Most commonly, however, the mortgage company will simply quote you a marginally higher interest rate in exchange for lender credits that cover your closing costs.
In this scenario, the refinance break-even calculation works differently. Here, you’ll want to determine the difference in monthly payments between if your lender pays your closing costs and if you pay them yourself and divide the total costs by that amount.
If you plan to keep your mortgage for longer than that reverse break-even period, you’ll end up ahead by paying out-of-pocket for closing. If you plan to sell or refinance before then, it probably makes sense to take the lender up on their no-cost refinance offer.
Regardless, however, it can be a win-win situation if you’re able to qualify for a no-cost refinance at a lower rate than you’re paying on your current mortgage.
When You’re Refinancing for Reasons Other Than Rates
Most homeowners refinance to reduce their interest rate and monthly payments. However, there are other reasons to refinance that may not have the same kind of break-even period.
For example, if you’re tapping into your built-up equity with a cash-out refinance, you’ll likely have larger monthly payments and may even need to accept a higher interest rate.
Or perhaps you’re refinancing to pay off a co-owner’s share of equity, such as in a divorce buyout. Your balance – and payments – will likely increase here as well.
Then, some homeowners who currently have an adjustable-rate mortgage (ARM) may want to refinance into a more predictable fixed-rate loan. While it could be possible to calculate a break-even point in this scenario, it often takes a backseat to the stability of the new mortgage.
Sometimes, regardless of the results of the refinance break-even calculator, it makes more sense to focus on the financial outcome that you’re trying to achieve rather than how long it will take to come out ahead on your refinanced loan.
What to Take Away From the Refinance Break-Even Calculator
The mortgage refinance break-even calculator can be a powerful tool to help you decide whether refinancing is right for you. If you plan to stay in your home and keep your loan for longer than the break-even period, refinancing is likely a wise decision.
However, there’s more to consider than just how long it will take you to break even. In some cases – such as when cashing out equity or switching out of an adjustable-rate mortgage – it can make sense to refinance regardless of your break-even calculation.Ready to get started? Apply for a refinance with Refi.com today.
Expert Reviewed
Fact-checked by Tim Lucas.