Refinance Break-Even Calculator: Know When Savings Outweigh Costs
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How do you calculate a refinance break-even point?
Divide total refinance costs by your new monthly savings. For example, $4,200 in closing costs divided by $180 in monthly savings equals a 23-month break-even. If you plan to keep the home longer than 23 months, the refinance pays off; otherwise, the upfront costs outweigh the benefit.
Components that drive refinance costs
Closing costs include lender fees, appraisal, title services, recording charges, and prepaid interest or escrows. These typically run 2%–5% of the loan balance.
Cash-out refinances add opportunity cost because your new loan balance is higher. Count the extra interest on tapped equity when comparing scenarios.
Scenario modeling: rate drop, shorter term, or cash-out
Rate-drop refinance: focus on monthly payment reduction and total interest saved over the remaining term.
Term-shortening refinance: payments may rise, but the interest curve shrinks dramatically—compare lifetime interest rather than monthly savings alone.
Cash-out refinance: weigh the use of proceeds (debt consolidation, renovations) against the larger loan balance and potentially higher rate.
Sensitivity analysis and decision checkpoints
Run a "what if I sell" test by comparing the break-even months to your expected move timeline.
Use our calculator to shift rates by ±0.5% and fees by ±$1,000 to see how sensitive the break-even point is.
Pair the break-even calculation with total interest saved to determine if a slightly longer break-even still yields meaningful lifetime savings.
Smart refinance practices
- Negotiate lender credits or shop multiple quotes to shrink closing costs.
- Avoid restarting a 30-year clock late in your mortgage unless savings are substantial.
- Recalculate your break-even any time rates move significantly before locking.
Decide with data, not guesswork
A refinance only makes sense when the savings timeline fits your goals. Itemize every cost, simulate multiple scenarios, and keep the plan flexible until you lock. With a clear break-even point you can walk into lender conversations prepared and confident.