Mortgage Refinance Break-Even Calculator

Break-even is closing costs divided by monthly saving

Spending 4,000 to close and saving 200 a month gives a break-even of 20 months. Staying beyond that, the refinance pays. Selling or refinancing again before it, you lost money. This single number decides most refinance questions, and it is far more informative than the rate difference everyone quotes.

Resetting the term hides the real cost

Refinancing 22 years into a 30-year mortgage back into a fresh 30-year term lowers the payment substantially and can increase total interest paid, because you have restarted the amortisation at its most interest-heavy point. The monthly saving is real; the lifetime saving may be negative. Refinancing into the remaining term rather than a new full term is what preserves the gain, even though the payment relief is smaller.

Rolling costs into the loan is not free

Adding closing costs to the principal avoids writing a cheque and means paying interest on those costs for the life of the loan. A no-closing-cost refinance is the same trade in a different form: the lender covers the fees and charges a higher rate, which costs more than the fees whenever the loan is held for long.

The rate rule of thumb is obsolete

The old guidance of refinancing when rates fall a full point ignores loan size. On a large balance, a quarter point can break even in under a year; on a small one, a full point may never justify the costs. Run the break-even rather than the rule.

Cash-out changes the question entirely

A cash-out refinance converts equity into debt secured against your home, generally at a lower rate than unsecured borrowing. That trade can be sensible, but it is a borrowing decision rather than a savings one, and the break-even framing does not apply — the relevant comparison is against other ways of borrowing the same amount.

Removing mortgage insurance can beat the rate

If a rise in property value has taken the loan-to-value below the threshold, refinancing can eliminate mortgage insurance entirely. That saving is often larger than the interest saving, and it is invisible in any comparison that looks only at rates.