How to Calculate Your Refinance Break-Even Point

If you learn one number before refinancing, make it your break-even point: the month your accumulated savings finally cover what the refinance cost you. Before that month, the refinance is in the red. After it, everything is savings. Here is how to calculate it correctly.

The basic formula

Break-even (months) = Total closing costs ÷ Monthly payment savings

A worked example

• Remaining balance: $280,000
• Current loan: 6.9% with 26 years left → payment ≈ $1,933/month (principal & interest)
• New loan: 5.9%, 30-year term → payment ≈ $1,661/month
• Closing costs: $7,300

Monthly savings: $1,933 − $1,661 = $272. Break-even: $7,300 ÷ $272 ≈ 27 months. Keep the home past two and a quarter years and the refinance pays for itself.

Three mistakes that skew the number

1. Comparing loans with different terms as if they were equal

In the example above, part of that $272 "savings" comes from stretching 26 remaining years back out to 30. That lowers the payment without lowering the cost of borrowing as much as it appears. The honest check: compare total interest on both loans, not just the payment. The calculator shows both.

2. Ignoring costs rolled into the balance

Many refinances fold closing costs into the new loan. You still paid them — and you pay interest on them for decades. Include rolled-in costs in the break-even math even though they never left your checking account.

3. Counting escrow changes as savings

Taxes and insurance travel with the house, not the loan. If your new payment quote looks dramatically lower, confirm you are comparing principal-and-interest to principal-and-interest.

What is a good break-even?

One more nuance: break-even assumes your alternative is doing nothing. If you would otherwise invest the closing-cost money, the true hurdle is slightly higher. For most homeowners, though, the simple formula answers the question that matters: will I still own this home when the refinance turns profitable?