Refinance Break-Even Calculator
A refinance break-even calculator shows how many months it takes for your monthly savings to repay your closing costs. Enter your current payment, your new payment and your total costs in our refinance calculator. Break-even is closing costs divided by monthly savings, and it only helps if you keep the loan longer than that.
Key Takeaways
- Break-even months = total closing costs / monthly principal and interest savings.
- If you expect to sell or refinance again before break-even, the refinance may cost you money.
- Include every cost, including points and costs you finance into the loan.
- Break-even ignores term changes and total interest, so check those too.
Refinance break-even calculator
How do I use the calculator?
- Find your current payment. Use the principal and interest portion from your mortgage statement. Leave out taxes, insurance and HOA dues.
- Enter the new payment. Take the principal and interest figure from a written Loan Estimate for the new loan.
- Enter total costs. Add every cost to close, including points, lender or broker fees, appraisal, title and escrow, recording and any upfront mortgage insurance or funding fee. See the costs of refinancing.
- Read the results. Look at your monthly savings and how many months it takes the savings to repay your costs.
- Compare with your plans. Ask yourself honestly whether you will keep the home and the loan past the break-even point.
What should I include in closing costs?
An honest break-even depends on honest costs. Include:
- Lender or broker fees and underwriting charges.
- Discount points you pay to lower the rate.
- Appraisal, credit report and other third-party fees. See using a new appraisal for when an appraisal is needed.
- Title insurance, escrow and recording fees.
- Upfront mortgage insurance or funding fees, if they apply to your loan.
- Any prepayment penalty on your old loan.
Do not include property tax and insurance deposits, since you would pay those anyway, but plan for the cash. If you finance the costs into the loan, enter the new loan’s payment, which already reflects the larger balance, and still enter the costs so the calculator can compare them. If a lender credit covers costs in exchange for a higher rate, enter only the costs you actually pay, along with the higher-rate payment.
Why do total interest and term matter?
Break-even tells you when monthly savings repay the costs. It does not tell you what the loan costs in total. Suppose you are 7 years into a 30-year loan and refinance into a new 30-year loan. Your payment may fall, but you now owe for 30 more years instead of 23. Even with a lower rate, you could pay more total interest. A refinance to a shorter term can show little or no monthly savings, or even a higher payment, yet save a large amount in interest.
Use this calculator for payment-savings refinances, and use the comparison in how much will I save by refinancing to look at total interest. For term choices, see rate-and-term refinance.
What are the limits of break-even analysis?
- It ignores the time value of money. A dollar saved in year four is worth a little less than a dollar saved in year one, and cash used for closing costs could have been used elsewhere.
- It assumes your payment stays the same. That is true for fixed rates, not for an adjustable-rate loan after the fixed period.
- It ignores your plans. A job change, family needs or a sale can end the loan before break-even.
- It ignores insurance changes unless you include them. If your new payment removes PMI or FHA insurance, make sure that is reflected.
- It does not cover cash-out refinances. With cash out, the balance and payment rise, so a lower rate may not show as savings. See cash-out refinance.
- It does not include taxes. Ask a tax professional about the tax effects of points and interest.
Use the calculator as a first screen, then compare written Loan Estimates for the final decision. Also see factoring in the costs and the refinancing a home overview.
At Lendia, we run the numbers with you
At Lendia, we compare your current loan with options from multiple lenders and show break-even and total interest side by side. A Licensed Lendia California Loan Officer will tell you when refinancing does not make sense. Contact us or get a rate quote now.
Frequently Asked Questions
How is refinance break-even calculated?
Divide your total closing costs by your monthly payment savings. For example, $9,000 / $400 = 22.5 months.
What if my new payment is higher?
Then there are no monthly savings and no break-even. A refinance might still meet other goals, such as a shorter term.
Should I include escrow in the payments?
Generally no. Use principal and interest only, unless your escrow changes because of the refinance.
Is a short break-even always good?
A shorter break-even is better, but also check the new term and total interest.
Can I rely on this calculator for a decision?
No. It gives estimates only. Use a written Loan Estimate and talk with a loan officer.
Rates and terms depend on your situation; approval requires qualification.
Talk to a Licensed Lendia California Loan Officer
At Lendia, we review your situation and show you the programs you qualify for.