How the calculator works
A refinance pays off when what you save is more than what you paid to get the new loan. The calculator shows two versions of that break-even point.
- Simple break-even = total refinance costs (closing costs plus points) ÷ monthly principal-and-interest savings. This is the common rule of thumb.
- True break-even is the first month where your cumulative payment savings, plus the difference between the old and new loan balances, cover the cash you paid at closing. It simulates both loans month by month.
The balance term matters because a fresh 30-year loan pays down principal more slowly than a loan you are years into. Part of a lower payment is just slower repayment, not real savings. If you roll costs into the loan, the new balance starts higher by that amount, and the true break-even counts that too.
The calculator also totals the interest left on your current loan and the interest on the new one over its full term, and warns you when the new term adds years of payments.
Worked example
You owe $350,000 at 7.25% with 28 years (336 months) left. A lender offers 6.25% on a new 30-year loan, with $6,000 in closing costs and no points, paid in cash.
| New 30-year term | New 28-year term | |
|---|---|---|
| Current principal & interest | $2,437 | $2,437 |
| New principal & interest | $2,155 | $2,208 |
| Monthly savings | $282 | $228 |
| Simple break-even | 22 months | 27 months |
| True break-even | 21 months | 21 months |
| Ahead after 7 years | $17,434 | $18,558 |
| Lifetime savings after costs | $36,877 | $70,648 |
Both versions break even in under two years, so the refinance makes sense if you will stay longer than that. But look at the last row. Restarting the clock at 30 years adds two years of payments and cuts lifetime savings nearly in half. Matching the term to the 28 years you have left gives a smaller monthly saving but almost twice the long-run benefit.
What the CFPB says to check first
- Are you moving soon? If you will move in the next few years, you may not have time to recoup the cost.
- Has your home value or credit fallen? Either can make it harder to get better terms.
- Does your mortgage have a prepayment penalty? If so, add it to closing costs.
- A new term can be longer. A lower payment over more years can cost more in total. You can often ask for a custom term, such as 22 years.
Points cost 1% of the loan amount each and lower your rate. Enter them separately so you can see how much they push out the break-even month.
Edge cases
- FHA and VA loans have streamlined refinances. When a VA loan is refinanced into a new VA loan that is no larger than the old payoff (as with an Interest Rate Reduction Refinance Loan, or IRRRL), federal law requires fees and closing costs to be scheduled to be recouped through lower monthly payments within 36 months. See the VA loan calculator and FHA loan calculator.
- Escrow and prepaid items (property taxes and homeowners insurance) are not refinance costs. You owe them with or without a refinance, so leave them out.
- Taking cash out changes the math completely. Use the cash-out refinance calculator.
- Taxes. The calculator ignores the mortgage interest deduction. If you itemize, your real savings are a little smaller.
What to do next
Read when refinancing is worth it, decide whether to buy down the rate with the mortgage points calculator, and compare lenders' Loan Estimates side by side with the mortgage offer comparison calculator.