Loan calculator, 5 of 5
Refinance break-even
A lower rate saves money each month, but refinancing has closing costs. Find out how long the savings take to cover them, and whether the new loan costs less over its whole life.
Break-even
23 months
That is 1 year 11 months: $6,000.00 closing costs ÷ $265.43 saved a month. Counting loan balances too, you are ahead from month 25.
- Monthly savings
- $265.43$2,112.58 → $1,847.15
- Over the full terms
- $13,502.14less paid in all
- New loan amount
- $300,000costs paid at closing
Ahead or behind, month by month
The two loans
| Measure | Keep current loan | Refinance |
|---|---|---|
| Monthly payment | $2,112.58 | $1,847.15 |
| Payments left | 324 | 360 |
| Total interest | $384,477.94 | $364,975.80 |
| Closing costs paid in cash | $0.00 | $6,000.00 |
| Everything you pay from now | $684,477.94 | $670,975.80 |
Educational use only — not financial advice. Rates and costs are what you enter; real offers, taxes and how long you keep the home all change the picture.
Two ways to measure break-even
Simple break-even divides the closing costs by the monthly payment saving. In the example, the current $300,000 at 7.25% with 27 years left costs $2,112.58 a month; a new 30-year loan at 6.25% costs $1,847.15. That saves $265.43 a month, so $6,000 of costs take 23 months to recover.
The fuller measure in the chart also counts the loan balances. A longer new loan repays principal more slowly, so you can save on the payment while owing more. The line starts at minus the closing costs, adds the payments saved, and adjusts for the difference in balances. In the example it turns positive in month 25.
The table answers the other question: what you pay from now to the end of each loan. Resetting to a longer term can lower the payment and still cost more overall; the result warns when that happens. Try "Keep the same end date" to compare like with like.
If you sell or refinance again before break-even, the costs are not recovered. Check for a prepayment penalty on the current loan too.
Sources
- Consumer Financial Protection Bureau, What is a prepayment penalty?: penalties can apply when a loan is paid off by refinancing.
- Consumer Financial Protection Bureau, What is the difference between a mortgage interest rate and an APR?
Questions
Is rolling closing costs into the loan free?
No. You pay nothing at closing, but the costs join the balance and collect interest for the life of the loan. Break-even counts them either way; added to the loan, they make the payment saving a little smaller and break-even a little later.
Why are the two break-even months different?
The simple one looks only at payments. The fuller one also notices that a 30-year loan pays down principal more slowly than the 27 years left on the old one, so it takes a little longer to come out ahead.
What closing costs should I enter?
The loan costs from the lender's Loan Estimate, such as origination charges, appraisal, title and recording fees. Different lenders' estimates use the same layout, so they are easy to compare.