Transparent method
The formula
Worked example
Example inputs
How to interpret the result
A refinance's monthly savings and its break-even timeline are two different numbers pulling in different directions. A bigger monthly savings from a longer new term can still take longer to break even once closing costs are recovered, so the more attractive-looking monthly number isn't automatically the better overall deal.
Before you rely on it
What to check
Compare the break-even month against how long you actually expect to keep the loan, not just the size of the monthly savings figure alone.
The common error
Where people go wrong with mortgage refinance calculator
Choosing a refinance option based on the largest monthly savings without checking its break-even timeline. A structure with smaller monthly savings but a shorter break-even can be the better deal for anyone who won't hold the loan for many years.
Sensitivity evidence
How current loan balance changes the break-even time
| Current loan balance | Break-even time | Monthly payment savings |
|---|---|---|
| $248,000 | 41.5 months | $157 |
| $279,000 | 36.9 months | $176 |
| $310,000worked example | 33.2 months | $196 |
| $341,000 | 30.2 months | $215 |
| $372,000 | 27.7 months | $235 |
Every input, tested
Which input moves the break-even time most
| Input | Tested from | To | Break-even time at each end | Swing |
|---|---|---|---|---|
| Current rate | 6.3% | 8.3% | 0.0 months to 16.3 months | 16.3 months (49%) |
| New rate | 5.3% | 7.3% | 17.0 months to 0.0 months | 17.0 months (51%) |
| Current loan balance | $279,000 | $341,000 | 36.9 months to 30.2 months | 6.7 months (20%) |
| Refinance costs | $5,850 | $7,150 | 29.9 months to 36.5 months | 6.6 months (20%) |
| Remaining term | 19.0 years | 31.0 years | 35.7 months to 31.3 months | 4.5 months (13%) |
Two variables at once
Break-even time by current loan balance and current rate
| Current loan balance \ Current rate | 5.3% | 7.3% | 9.3% |
|---|---|---|---|
| $248,000 | 0.0 months | 41.5 months | 13.3 months |
| $279,000 | 0.0 months | 36.9 months | 11.8 months |
| $310,000 | 0.0 months | 33.2 months | 10.7 months |
| $341,000 | 0.0 months | 30.2 months | 9.7 months |
| $372,000 | 0.0 months | 27.7 months | 8.9 months |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Current loan balance | $310,000 |
| Current rate | 7.3% |
| New rate | 6.3% |
| Remaining term | 25.0 years |
| Refinance costs | $6,500 |
| Break-even time | 33.2 months |
| Monthly payment savings | $196 |
Where the inputs come from
Current balance and rate are on your latest mortgage statement, and remaining term is the years left on the original schedule, not the original term. The new rate comes from a written quote for the same product type, and the refinance costs are the total from the Loan Estimate, including title, appraisal and lender fees. If you plan to roll the costs into the loan, note that the balance grows and the payment savings shrink.
When the result stops applying
The calculation treats savings as constant and ignores the tax effect of interest deduction, PMI changes and any rate buydown. Cash-out refinances, adjustable products and loans with prepayment charges need separate treatment. If your current balance is under 80% of the home's value, an appraisal may still be required, and a lower value can change the rate.
What to compare it with
A refinance decision should include the alternatives. If you only want cash, a HELOC or home equity loan may cost less. If you want a lower payment, a recast may work without a new loan. If you want a shorter loan, compare the 15-year calculator. Check your credit and equity before applying so the quote you get is the one you will close on. And keep the timeline in mind: if rates might fall further, waiting can be better, but nobody can time that reliably.
People also ask
Frequently asked questions
How much lower should the new rate be?
There is no fixed threshold. What matters is break-even against how long you will keep the loan, since low closing costs can justify a smaller rate drop.
Does refinancing restart my 30-year clock?
It can, unless you choose a shorter term. Starting over lowers the payment but can increase total interest paid on the debt.
Should I pay points on a refinance?
Only if you will keep the loan long enough to recoup the cost. Use the break-even to test it.