Refinance Break-Even Calculator
How many months until a refinance pays for itself.
Reviewed by the Calculation Machine team · Updated 24 October 2026 · How we check our maths
Your values
ⓘ Live results
- Break-even point
- 27 months
- Monthly saving
- $195.78
- New payment
- $1,791.63
- Saving over remaining term
- $55,881.81
Quick answer
The refinance break-even point is closing costs ÷ monthly payment saving, rounded up to whole months. Refinancing a $280,000 balance with 26 years left from 7.2% to 6.1% cuts the payment by $195.78 a month, so $5,200 of closing costs is recovered in 27 months. If you keep the loan longer than that, the refinance comes out ahead.
What the Refinance Break-Even calculator does
This calculator compares your current loan payment with the payment at a new rate over the same remaining term, then divides your closing costs by the monthly difference to find how long it takes to earn them back. It also shows the new payment and the total saving over the remaining years after costs.
Use it for a rate-and-term mortgage refinance and for auto loan refinancing — the math is the same, only the balance, term and fees differ. The key question it answers is whether you will keep the loan, and the home or car, past the break-even point.
The new loan is assumed to run for the same number of years you have left, so the comparison is like for like. Lenders often quote a fresh 30-year term instead; that lowers the payment further but can raise total interest, so compare both before signing. The calculator also assumes closing costs are paid up front rather than rolled into the balance. For refinances that take equity out, use the cash-out refinance calculator.
The formula
Payment = B × r ÷ (1 − (1 + r)⁻ⁿ), calculated at the old and new rate Monthly saving S = old payment − new payment Break-even months = ⌈closing costs ÷ S⌉ Net saving = S × n − closing costs
| Symbol | Meaning | Unit |
|---|---|---|
| B | Current loan balance being refinanced | $ |
| r | Monthly interest rate = annual rate ÷ 12 ÷ 100 | decimal |
| n | Remaining term in months (years remaining × 12) | months |
| closing costs | Lender fees, appraisal, title, recording and any points paid | $ |
| ⌈ ⌉ | Round up to the next whole month | — |
This is the simple payback method used in most consumer refinancing guidance. It compares payments only, so it slightly understates the benefit of a lower rate, which also pays principal down faster. It ignores taxes, and it does not apply if the new term differs from the remaining term or if closing costs are financed into the loan.
Worked examples
Larger mortgage, bigger rate drop
A $400,000 balance with 28 years left moves from 7.5% to 6.25%, with $9,000 in closing costs.
Inputs
- Current balance400000 $
- Current rate7.5 %
- New rate6.25 %
- Years remaining28 years
- Closing costs9000 $
Result
- Break-even point28 months
- Monthly saving$327.55
- New payment$2,523.92
- Saving over remaining term$101,056.40
The payment falls by $327.55 a month and the costs are recovered in 28 months. Anyone planning to stay more than about two and a half years benefits, with over $100,000 saved if the loan runs its full term.
Auto loan refinance
A car loan with $22,000 left and 4 years to go, refinanced from 9.5% to 6.9% for a $300 fee.
Inputs
- Current balance22000 $
- Current rate9.5 %
- New rate6.9 %
- Years remaining4 years
- Closing costs300 $
Result
- Break-even point12 months
- Monthly saving$26.91
- New payment$525.80
- Saving over remaining term$991.76
The saving is only $26.91 a month, but low fees mean break-even in 12 months and a net saving of about $990 over the remaining term. Keep the same payoff date rather than stretching to a new 6-year loan.
Small rate cut that barely pays
A $150,000 balance with 20 years left, moving from 6.5% to 6.0%, with $4,500 in costs.
Inputs
- Current balance150000 $
- Current rate6.5 %
- New rate6 %
- Years remaining20 years
- Closing costs4500 $
Result
- Break-even point103 months
- Monthly saving$43.71
- New payment$1,074.65
- Saving over remaining term$5,991.15
Break-even takes 103 months — over 8½ years. Unless you are sure you will keep the loan that long, a half-point drop on a modest balance is rarely worth this level of fees; ask for a no-closing-cost offer instead.
What counts as closing costs on a refinance
Use the total from the Closing Costs section of your Loan Estimate, excluding prepaid escrow items (property tax and homeowners insurance deposits), because those are costs you would pay anyway. Mortgage refinance costs commonly run around 2% to 5% of the loan amount, but they vary widely by lender and state, so compare Loan Estimates from at least two or three lenders.
| Item | What it is | Include in break-even? |
|---|---|---|
| Origination / lender fees | Lender's charge for making the loan | Yes |
| Discount points | Upfront interest paid to lower the rate (1 point = 1% of the loan) | Yes |
| Appraisal | Valuation of the home | Yes |
| Title search and lender's title insurance | Checks and insures ownership | Yes |
| Recording fees and taxes | Government charges to record the new mortgage | Yes |
| Prepaid interest, escrow deposits | Interest to month-end and tax/insurance reserves | No — paid either way |
Why resetting the term changes the answer
If you have 26 years left and refinance into a new 30-year loan, the payment drops partly because of the lower rate and partly because you are spreading the balance over four more years. The break-even looks faster, but you pay interest for longer.
To keep the savings honest, either choose a term close to your remaining years, or keep making your old payment on the new loan — the difference will go to principal and pay it off early. The extra payment calculator shows how much that saves. Compare the total interest of both options with the mortgage payment calculator.
Rules of thumb and when to ignore them
- The "1% rule" says refinance when you can cut the rate by a full percentage point. It is a rough guide: on a large balance with low fees, half a point can pay back quickly, while on a small balance a full point may not.
- Plans to move or sell: if you expect to sell before the break-even month, you lose money on the refinance.
- Credit and equity: the best rates usually require good credit and at least 20% equity; with less equity you may pay mortgage insurance, which reduces the saving.
- Auto loans: check for prepayment penalties on the old loan and title-transfer fees, and add them to closing costs.
How to use the Refinance Break-Even Calculator
- 1Enter the current balance from your latest loan statement.
- 2Enter your current interest rate and the rate quoted on the new loan (use the note rate, not the APR).
- 3Enter the years left on your existing loan, for example 26 if you are four years into a 30-year mortgage.
- 4Enter total closing costs from the Loan Estimate, including points but not escrow deposits.
- 5Read the break-even months and compare them with how long you expect to keep the loan.
Frequently asked questions
What is a good refinance break-even point?
Any break-even that comes well before you expect to sell or pay off the loan. Many borrowers look for 24 to 36 months or less, because plans change and a short payback limits the risk.
Should I roll closing costs into the new loan?
It avoids paying cash now, but you then pay interest on those costs for the life of the loan and the new balance is higher. Run the numbers with the larger balance to see the true effect.
Is a no-closing-cost refinance worth it?
It often is if you may move within a few years. The lender covers costs in exchange for a higher rate, so the break-even is immediate, but over a long period you pay more interest.
Does refinancing an auto loan hurt my credit?
Applying causes a hard inquiry, which may lower your score slightly for a short time. Rate shopping for the same type of loan within a short window is usually counted as a single inquiry by scoring models.
Should I pay points to get a lower rate?
Points make sense only if you keep the loan beyond their own break-even: cost of the points divided by the extra monthly saving they buy. Enter the points in closing costs and the lower rate here to test it.
References
- Owning a Home – Loan Estimate explainer and refinancing guidance — Consumer Financial Protection Bureau
- Your Home Loan Toolkit — Consumer Financial Protection Bureau
About this calculator
- Built and reviewed by the Calculation Machine team · How we build and test calculators
- Last reviewed: October 24, 2026
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