Mortgage Refinance Break-Even Calculator

The break-even formula is one line. Months to break even = closing costs / monthly savings. If your refi costs $4,200 in fees and saves you $175 a month, you break even at month 24.

What counts as closing costs. Lender fees, title insurance, appraisal, recording, and prepaid items add up to 2-5% of loan amount on most refis. A $300,000 refi typically costs $6,000-$15,000 to close. Some lenders advertise “no-cost refi” but the fees are baked into a higher rate — you pay over time instead of upfront.

What counts as monthly savings. Compare apples to apples. Old principal + interest only, vs new principal + interest only. Do not include taxes and insurance unless they actually change. If you reset a 22-year remaining loan to a fresh 30-year, you lower the payment but stretch the term — the lower number is not free savings.

The five-year rule. Most lenders and personal-finance writers say “do not refi unless you break even within 5 years.” That heuristic exists because the average homeowner moves or refis again within 7-10 years. If your break-even is 60 months and you sell at month 50, you lost money on the refi. Calculate honestly.

Cash-out refi changes the math. Pulling equity out at closing means the new loan balance jumps. The break-even from the rate cut alone has to be weighed against the additional interest on the cash you took out. Two separate decisions in one transaction.

Worked example. Old payment: $1,850 P&I on $280,000 at 6.75%. New payment: $1,650 P&I on $280,000 at 5.75%. Closing costs: $4,800.

• Monthly savings = $200
• Break-even = 4800 / 200 = 24 months

If you plan to stay 5+ years, this is a clean win. If you might move next year, do not bother.

Rate cut threshold. The old “1% rule” said only refi if you can cut your rate by 1% or more. With today’s lower closing costs at some lenders, even a 0.5% drop can pay back inside 18 months. Run the numbers, not the rule of thumb.