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Refinance break-even
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Find out how many months it takes for a lower mortgage rate to pay back the closing costs, and what you save if you stay.
- Current payment (principal and interest)$2,112.58
- New payment$1,847.15
- Monthly savings$265.43
- Net savings if you stay 7 years$13,484
- Interest left on current loan$384,477
- Total interest on new loan$364,975
Net savings compares everything you would pay over the years you stay, including the loan balance left at the end. Taxes, insurance, and escrow are not included.
How this calculator works
Refinancing replaces your mortgage with a new loan, usually to get a lower rate. You pay closing costs, often 2% to 5% of the loan, either upfront or rolled into the new balance. The break-even point is how long the monthly savings take to cover those costs. If you expect to stay in the home well past the break-even point, refinancing usually pays off. Watch out for resetting to a new 30-year term: the payment drops, but you may pay more interest overall.
A worked example
The example has $300,000 left on a loan at 7.25% with 27 years to go, and a current payment of $2,112.58. Refinancing into a new 30-year loan at 6.25% gives a payment of $1,847.15, saving $265.43 a month. Closing costs are $6,000 paid in cash.
Dividing $6,000 by $265.43 gives about 23 months, so the break-even point is 1 year and 11 months. If the owners stay 7 years, the net saving is about $13,484 after counting the closing costs and the loan balance still owed at the end. If they sold after 2 years, they would come out roughly even, about $98 behind once the remaining loan balances are compared.
Rolling the $6,000 into the new loan requires no cash, but the payment becomes $1,884.09, the break-even stretches to 2 years and 2 months, and the 7-year saving falls to about $10,978.
How to read your results
Break-even answers one question: how long until the monthly savings repay the closing costs? "Net savings if you stay" is the more complete measure. It compares everything you would pay on each loan over the years you expect to stay, plus what you would still owe at the end.
The two interest rows show a subtle cost. In the example the new loan runs three years longer than the old one, which is a large part of why the payment falls. If you choose a shorter new term, the calculator may show no monthly savings at all while the net savings and total interest look much better. In that case the refinance is paying off through a faster payoff, not through a lower payment.
Common mistakes to avoid
- Looking only at the new payment. A lower payment that comes from restarting a 30-year clock can cost more interest overall.
- Overestimating how long you will stay. If a move is likely before the break-even point, the refinance loses money.
- Assuming a no-closing-cost loan is free. The costs are still there. They are either added to the balance or paid for through a higher rate.
- Skipping the comparison. Rates and fees differ between lenders. Ask each for a Loan Estimate and compare them line by line.
Read the guide: When is refinancing worth it?
Common questions
How much lower should the rate be to refinance?
There is no fixed rule. What matters is whether you will stay past the break-even point. A drop of half a point can be worth it on a large loan you will keep for many years, and a full point may not be if you move soon.
What do refinance closing costs include?
Typically a lender origination fee, an appraisal, title search and title insurance, recording fees, and prepaid interest, taxes, and insurance. Together they often run 2% to 5% of the loan.
Should I pay closing costs in cash or roll them in?
Paying in cash gives the lowest payment and the most savings. Rolling them in keeps your cash but means paying interest on the costs for the life of the loan.
Does this include a cash-out refinance?
No. This compares replacing your current balance with a new loan of the same size. Taking cash out raises the balance and changes the comparison.
Disclaimer: This calculator is for education and planning only and is not financial advice. Your actual payment depends on your credit, loan type, and the rate you lock, and on property taxes and insurance where you live. Ask your lender for a Loan Estimate before you commit.
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