Should you refinance? Find the month it pays off.
A lower payment isn't the same as a better deal. Put in your loan, the new rate and the closing costs. This counts everything that differs between keeping your mortgage and replacing it, and tells you when, if ever, the refinance comes out ahead.
Refinance break-even
No signup, nothing stored.
Over 7 years, refinancing saves you
$4,004
- New monthly payment
- $2,317
- Breaks even
- Month 51
- Rate that breaks even in time
- 7.40%
How far ahead (or behind) the refinance is, month by month
Refinance minus keep Break-even line Your horizon
At your horizon, side by side
An estimate on a fixed rate and fixed payments. It is not a loan offer or a rate quote. The reasoning and worked examples are in the guide: Should you refinance your mortgage?
Six things behind the answer
-
Why the simple break-even is often wrong
The usual rule divides closing costs by the monthly saving: $7,300 in costs and $200 a month saved breaks even in about three years. But a new 30-year loan starts paying down principal from scratch, so part of that lower payment is just a slower payoff. This calculator counts what actually differs between the two paths at each month: the payments you've made, any costs paid in cash, and the balance you'd still owe if you sold or paid off. That break-even usually comes later, sometimes much later, than the simple rule says.
-
Where the default rate comes from
The new rate starts at the latest weekly average from Freddie Mac's Primary Mortgage Market Survey, fetched from FRED when the page loads: the 30-year average, or the 15-year average if you choose a 15-year term. A lender's quote depends on your credit, your equity, the points you pay and the day you lock. The current rate starts at 7.79%, the highest weekly average of 2023 (October 26). Use the rate on your own statement.
-
Where the default closing costs come from
$7,300 is close to the median of $7,329 in total loan costs on refinances in 2023, from the CFPB's analysis of HMDA data. That covers lender charges, required services such as the appraisal and title, and discount points where paid; 67.7% of refinances in 2023 paid points, with a median of about $3,902. Prepaid interest and the escrow you fund aren't in it. Your Loan Estimate, which a lender must send within three business days of your application (CFPB), has the real figure.
-
Rolling the costs into the loan isn't free
A "no-cash" refinance adds the costs to the new balance, so you pay interest on them for the life of the loan, and the break-even moves later. Some lenders offer a "no-closing-cost" loan instead, which usually means a higher rate in exchange for a lender credit. Model that by setting costs near zero and raising the new rate.
-
How long you'll keep the loan matters most
Everything turns on the horizon. If you expect to sell or refinance again before the break-even month, the costs never come back. Set the horizon to your honest guess and watch the third figure: it is the highest new rate at which refinancing at least breaks even by then. That is the rate worth waiting for.
-
What this leaves out
Taxes, private mortgage insurance, escrow and what your cash could have earned elsewhere. Points on a refinance are generally deducted over the life of the loan, not in the year paid (IRS Tax Topic 504), and only if you itemize. The comparison is in today's dollars without discounting, which flatters long horizons slightly. It assumes a fixed rate and the same payment every month.
Questions people ask
How do I calculate the break-even point on a refinance?
The quick version is closing costs divided by the monthly payment saving. The fuller version compares the two paths month by month: payments made, costs paid in cash, and the balance still owed. On a $340,000 balance at 7.79% with 27 years left, refinancing into a new 30-year loan at 7.24% with $7,300 in costs saves $199 a month. The quick rule says it breaks even in about 37 months; counting the slower principal paydown on the new 30-year loan, it breaks even in month 51.
How much lower does my rate need to be to refinance?
There is no fixed number of points. It depends on the costs, the balance and how long you'll keep the loan. In the example above, with a seven-year horizon, any new rate at or below about 7.40% at least breaks even. With a three-year horizon, the rate would need to be about 7.04% or lower.
Does refinancing restart my mortgage?
If you choose a new 30-year term, yes: your payoff date moves later and you can pay more total interest even at a lower rate. In the example, the new 30-year loan carries about $494,000 of interest over its life against $475,000 left on the old loan. Choosing a term that keeps your current payoff date avoids that.
Can I cancel a refinance after signing?
For a refinance of your principal residence with a new lender, federal rules (12 CFR 1026.23) generally give you until midnight of the third business day after closing to cancel. A refinance with your current lender is exempt except for any new money borrowed beyond the old balance and the costs of the refinance.
The Sunday money note
One number worth knowing and one decision explained, every Sunday. Free, and you can unsubscribe from any issue.
This calculator produces estimates from the inputs you provide. It is not a loan offer, a rate quote or a commitment to lend, and your actual costs and rate depend on the lender, your credit and your property. It is educational and is not personalized financial advice.