Refinance Calculator

How the break-even point works

Refinancing swaps your current mortgage for a new one, usually to get a lower rate — but the swap isn't free. Closing costs on a refinance typically run 2% to 6% of the loan amount, covering the appraisal, title work, origination, and recording fees. The break-even point is how long it takes your monthly savings to pay back those upfront costs:

break-even months = closing costs ÷ monthly savings

If you plan to stay in the home well past the break-even point, the refinance can make sense. If you might sell or refinance again before then, you would pay the closing costs without ever collecting enough savings to cover them.

A worked example

Suppose you owe $300,000 at 6.75% with 25 years left, so your principal-and-interest payment is about $2,073 per month. You refinance into a new 30-year loan at 5.75% with $6,000 in closing costs. The new payment is about $1,751 — a saving of roughly $322 per month. Divide $6,000 by $322 and you break even in about 19 months. Stay in the home longer than that and the monthly savings are genuinely yours.

But here's the honest catch: that same refinance raises your lifetime interest. You had 25 years and about $321,800 of interest left on the old loan; the new 30-year loan carries about $330,300 of interest — roughly $8,400 more — because you restarted the clock and stretched the same balance over five extra years. The payment drops while the total cost goes up.

The term-restart trap, and how to avoid it

The fix is to refinance into a term that matches your remaining years instead of resetting to 30. Using the same numbers, a new 25-year loan at 5.75% costs about $1,887 per month — a smaller saving of roughly $185, with a longer break-even of about 33 months — but total interest falls to about $266,200, roughly $55,600 less than keeping the old loan. Another option: take the 30-year loan for flexibility but keep paying your old $2,073 amount, which retires the balance faster and recovers most of the interest savings.

When refinancing tends to make sense

• You can cut the rate meaningfully: a drop of around one percentage point is a common rule of thumb, though the break-even math matters more than any fixed rule.
• You'll stay past break-even: the longer you keep the loan after the break-even month, the more the refinance is worth.
• You match or shorten the term: refinancing 25 remaining years into a 15- or 25-year loan captures rate savings without adding years of interest.
• You can drop PMI: if your home has appreciated past 20% equity, a refinance can remove private mortgage insurance on top of the rate savings.
• You want out of an adjustable rate: moving from an ARM to a fixed rate trades a bit of cost for payment certainty.

What this calculator does not include

This tool compares principal and interest only. Property taxes, homeowners insurance, and HOA dues don't change in a rate-and-term refinance, so they're left out of both sides. It also ignores the time value of money, any prepaid interest or escrow adjustments at closing, and the tax treatment of mortgage interest. If you roll the closing costs into the new balance instead of paying cash, your savings shrink slightly and the break-even stretches a bit further than shown. As always, this is an educational estimate, not financial advice.